If you review the income statement, you see that net income is in fact $4,665. Unearned revenue had a credit balance of $4,000 in the trial balance column, and a debit adjustment of $600 in the adjustment column. Remember that adding debits and credits is like adding positive and negative numbers. This means the $600 debit is subtracted from the $4,000 credit to get a credit balance of $3,400 that is translated to the adjusted trial balance column. Remember that the balance sheet represents the accounting equation, where assets equal liabilities plus stockholders’ equity.

That is, the total dollar amount of debit and credit balances in each of the accounts must match at the end of the financial period. After all transactions have been posted from the journal to the ledger, it is a good practice to prepare a trial balance. A trial balance is simply a listing of the ledger accounts along with their respective debit or credit balances. The trial balance is not a formal financial statement, but rather a self-check to determine that debits equal credits.

What is a trial balance used for?

The following is the Statement of Retained Earnings for Printing Plus. To understand what an adjusted trial balance is, we first have to view an unadjusted trial balance as well as the necessary journal entries to complete in order to prepare an adjusted trial balance. If the total of the debit balances do not equal the total of the credit balance then there is a mistake somewhere, which needs to be investigated and corrected. The more often you create trial balances, the greater your chances of catching small errors before they snowball into significant problems. Create a trial balance at least once per quarter or reporting period. If you’re having consistent issues, consider preparing more frequent trial balances until you find the source of these anomalies.

The unadjusted trial balance in this section includes accounts before they have been adjusted. As you see in step 6 of the accounting cycle, we create another trial balance that is adjusted (see The Adjustment Process). In Completing the Accounting Cycle, we continue our discussion of the accounting cycle, completing the last steps of journalizing and posting closing entries and preparing a post-closing trial balance. You will not see a similarity between the 10-column worksheet and the balance sheet, because the 10-column worksheet is categorizing all accounts by the type of balance they have, debit or credit. If you look in the balance sheet columns, we do have the new, up-to-date retained earnings, but it is spread out through two numbers.

What are the three main uses of a trial balance?

Second, the transaction will be recorded in the journal (Step 2 of Accounting Cycle). Third, the transaction will be posted to the ledger (Step 3 of Accounting Cycle). This three-step process can be used when recording and posting any accounting transaction. The balance sheet is what is a trial balance classifying the accounts by type of accounts, assets and contra assets, liabilities, and equity. Even though they are the same numbers in the accounts, the totals on the worksheet and the totals on the balance sheet will be different because of the different presentation methods.

• Further, your trial reveals the unadjusted and adjusted balances of various ledger accounts.
• After preparing your trial balance this month, you discover that it does not balance.
• After correcting the adjusted trial balance, we create the post-closing trial balance with only permanent accounts (assets, liabilities, equity).
• While a trial balance can’t incontrovertibly prove that no errors exist anywhere in a business’s accounting system, it can point to inaccuracies and help to identify and correct errors in accounts in the general ledger.
• Though it is not conclusive proof of the correctness of all books of accounts because there can be some errors despite the fact that the total of both sides of the trial balance is matching.