The Trial Balance

Definition and Analogies 

Trial: the action or process of trying or putting to the test; patience, or stamina; formal examination before a competent tribunal of the matter in issue in a civil or criminal cause in order to determine the issue. Merriam Webster Dictionary 

Balance: physical equilibrium; produced by even distribution of weight on each side of the vertical axis. 

From the two words, the trial balance seems to be a process that evenly distributes the weight of the items in the ledger.

The trial balance shows that when the two sides of the scale are equal, then justice has been served. This is the entire concept of the trial balance.

If any side weighs more than the other side, then something is wrong with the process. 

The debit side which is the left side must be equal to the credit side which is the right side of the scale. 

The concept of Trial Balance 

In accounting, trial balance is a scale that shows that debit is equal to credit. 

A trial balance is a list that shows the balances of every ledger account at a given point in time.

The trial balance is prepared at the end of a period and it is done to prepare the primary financial statements.

The trial balance brings to memory what equality means. If a side of the scale is not apportioned with the right entries and amounts, the trial balance will become unbalanced. 

Just as a trial in the court, the entries in the accounting system undergo trials to check if they are in their proper positions, as this is the condition that will make the trial balance balanced. 

The trial balance pass through the rigors of the ledger and t-accounts. In the case that something is not properly accounted for at this stage, it will reflect in the trial balance. 

How To Post Transactions In Your Trial Balance 

Before entering items in the trial balance, they must have passed through the ledger and the principle that guides entries in the ledger is “for every debit entry, there must be a corresponding credit entry.”

This implies that there are two accounts for every transaction- the giver and the receiver.

This made a lot of sense to me because; I always wondered where losses incurred by stock and forex traders went to. It entered another account! There must be a corresponding account for the transaction to be balanced. 

So, if I opened a ledger for rent, which is an expense, I would enter the rent as debit on my rent account and enter as credit on my cash account.

This illustration depicts that the rent account was debited to credit cash for rent.

Another example is if shareholders gave me money to start my business, I will debit cash and credit capital because, the cash account that was credited by shareholders will be debited to credit the capital account. In this example, ‘shareholders’ is not an account, so the main accounts are cash and capital. 

The Secret To All These Postings 

So, like I explained earlier, there are 2 accounts for every transaction, so you must identify the right accounts first and then post.

For example, Mr. Ade received ₦7,000 cash from customer for service revenue. Can you identify the accounts? 

Before you say Mr. Ade and customer, accounts are the places where transaction occur not people. Therefore, in this example, the accounts are cash and revenue. He received cash for service rendered which brought revenue.

Tips To Guide Your Posting 

A-Assets have debit balances. If it is an asset, debit it in the asset column and credit the corresponding account. 

L-Liabilities have credit balances. If it is a liability, credit the liability account first and debit the corresponding account. 

E- Equity has credit balance. If it is shareholders’ funds or capital, credit it in the equity ledger and debit corresponding account.  

R- Revenues have credit balances. If it is revenue or an income, credit the revenue account and debit corresponding account. 

E- Expenses have debit balance. If it is an expense, debit the expense account and credit corresponding account. 

Another tip to remember is DEAL- Debit all Expenses, Assets and Losses

CLIP- Credit all Liabilities, Income and Provisions  

These tips will balance your account and then ‘justice’ will be served.