What is Trial Balance?
Definition
A trial balance is a report listing all accounts in the general ledger with their debit or credit balances, used to verify that total debits equal total credits.
Explained Simply
The trial balance is prepared at the end of an accounting period before producing financial statements. If debits don't equal credits, there's an error that must be found and corrected. However, a balanced trial balance doesn't guarantee accuracy — errors like posting to the wrong account won't be detected. There are three types: unadjusted (before adjusting entries), adjusted (after adjusting entries), and post-closing (after closing entries).
Related Terms
General Ledger
A general ledger is the master accounting record that contains all financial transactions of a business, organised by account, forming the basis for financial statements.
Double-Entry Bookkeeping
Double-entry bookkeeping is an accounting method where every financial transaction is recorded in at least two accounts — a debit in one and a credit in another — ensuring the books always balance.
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