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Trial Balance

Trial Balance

Author: Evan McLaughlin
In this lesson, the student will learn about the trial balance and how to calculate the trial balance.
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"Trial Balance"

Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792

Video Transcription

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Hey everyone, and welcome to our video today on the trial balance. So what is today's topic? Well, today we're going to talk exclusively about the trial balance.

We're going to talk about what the trial balance is. We're going to talk about how it's used, so what do we use the trial balance for in our accounting process? Then we're going to briefly just talk about two different types of trial balances. But I'm mostly going to talk about the unadjusted trial balance.

And we're also going to look at an example of an unadjusted trial balance and how that fits in with our trial balance worksheet. So today is going to be all about the trial balance. So you know what? Let's go ahead. Let's start talking about our trial balance.

So trial balance. What is it? What is the trial balance? Well, the trial balance is a list of the debit and credit balances of all of the general ledger accounts at a given time. So we use our trial balance as a summary or a checkpoint that all of our account totals, our debits, our total debits, when we take our total credits, that those equal. So our trial balance helps us identify if our debits and credits are equal.

And we can also use our trial balance to identify any errors or inconsistencies in journalizing and posting. Did we make any errors? Did we miss some things through the journalizing and posting process? Do our debits not equal our credits?

We also use the trial balance to identify any balances that seem incorrect. So if we have an understanding of the natural balances of our different types of accounts and we're looking at our trial balance and we're seeing that those accounts aren't fitting with our understanding of their natural balance, that might mean we need to dive deeper into that specific account and see what's going on there. And we use our trial balance exclusively internally. And it's not provided to external users.

So now more trial balance. Who uses it? Like I just said, the trial balance is used by only internal users. We don't provide the trial balance for external reporting purposes.

And there are two types of trial balances, an unadjusted, which we're going to talk about-- the unadjusted is really the working document, so it's used by the accountant for analysis and adjustments to perform those analyses that we just talked about. Do our debits equal our credits? Are there any accounts that seem like there might be some inconsistencies there? So this helps us identify completeness. And there's also an adjusted trial balance, which we used to prepare our financial statements and contains those corrections for errors or mistakes.

But let's talk about the unadjusted trial balance. And let's look at a trial balance worksheet example. So follow me. Let's go take a look at this.

OK, everyone. So what we have here is the start of our trial balance worksheet. And the start of any trial balance worksheet starts with a list of all of the general ledger accounts.

So you'll see all of our general ledger accounts listed here on the left side. And along with listing those general ledger accounts, we also indicate the balance in each of those accounts. And we'll indicate whether it's a debit balance or it's a credit balance.

So now let's start to talk about the different account categories. So here we have our assets. Our assets are listed from most liquid, being cash, to least liquid, in this case buildings. And that means how quickly they can be converted to cash. And the natural balance of our asset accounts is a debit balance. So you'll see that our assets here have a debit balance.

And now let's look at our liabilities. We have our accounts payable and notes payable. These liabilities are listed from short-term to long-term. That's the order that you would list your liabilities in. And our liabilities have a natural credit balance, so we'll see that we have credits here in our liabilities.

Our next category is our equity. So we'll see here we have common stock, retained earnings, and we also have owner drawings. So the natural balance of our equity accounts is going to be credit, as in the case of our common stock and our retained earnings. And you'll remember that owner draws, those are when the owner pulls cash out of a business. So that's going to be a debit to our equity.

And then finally, the last categories are our revenues, in this case sale, which are a natural credit balance. And then we have all of our expenses. And expenses have a natural debit balance.

And the important thing to note is that we always have to have our debits equal our credits. So you see here that we have $302,000 debits and $302,000 in credits. So that's what we use the trial balance for, is to make sure that in total our accounts balance and there's nothing that seems out the ordinary. So that's our start of our trial balance worksheet.

So that was our trial balance worksheet example. Now let's summarize. Let's bring it home. In a nutshell, what did we talk about today? Well, today we talked about exclusively the trial balance in detail.

We looked at it as an analysis and summary tool. So it's an internal summary and analysis tool. It can help us identify any inconsistencies or balances that seem correct, verify that our debits and credits are equal. And again it's an internal document. And we walked through that comprehensive example of our trial balance, which just to reiterate is a list of the debit and credit balances of all of the general ledger accounts at any given time.

Thanks, everyone. I hope you enjoyed the video. And I hope to see you next time.

Notes on "Trial Balance"

Terms to Know

Trial balance

A list of the debit and credit balances of all of the general ledger accounts at a given time.