What is a trial balance? Definition, examples and reading
What is an accounting document called a trial balance? This accounting document, which takes the form of a table, is used as a grid for reading your activity from an accounting and financial point of view.
In this article, we'll show you how it's made up, with the different accounts in the General Chart of Accounts (PCG), how it differs from the income statement, and how to read it.
What is the purpose of the trial balance, and how can you construct it easily without getting lost in the accounting entries? Find out in the rest of this article, co-written with Raphael Berguig, a chartered accountant and statutory auditor with Nexco.
What is a trial balance? Definition
A trial balance is a non-binding accounting document that lists all the accounts in a company's general ledger.
It is an intermediary statement between the general ledger and the financial statements that make up the accounting balance sheet and income statement, present in the tax return.
💡 Worth knowing: there are several types of accounting balance, each with specific characteristics and meeting precise needs:
- general ledger balances,
- auxiliary accounting balance,
- aged trial balances.
Let's find out which are the three types.
General ledger balances
Definition of the trial balance
The trial balance groups together all a company's accounts, following the order of the General Chart of Accounts (PCG), from class 1 to class 7.
For each item, it shows at least :
- account number
- account name
- total debits
- total credits,
- the balance of each account.
Example of a trial balance
Le Journal du Net offers a clear example of a trial balance:
The trial balance
Definition of the trial balance
The trial balance includes only accounts payable and accounts receivable, i.e., the accounts attached respectively to accounts 401 and 411 of the French General Chart of Accounts (PCG).
For each item, it shows :
- account number,
- account name
- opening balance,
- closing balance,
- total debits,
- total credits.
Example of a subsidiary trial balance
Aged trial balance
Definition of the aged trial balance
The aged trial balance is based on trial balance data according to the date on which they were incurred. In other words, it breaks down payables and receivables according to when they are due for payment.
Example of an aged trial balance
What is the role of the trial balance?
The trial balance is not compulsory: it will not be required by any administrative authority. However, it is an essential part of your company's accounting system. A genuine management and control tool, it enables you to :
- determine the balance sheet and income statement, in particular by calculating the profit or loss for the year,
- check all accounting entries,
- check that total debits and credits are equal. The balance must be "balanced",
- check the calculation of your VAT (Value Added Tax) declarations.
In the more specific context of the aged trial balance, the interest will be :
- monitor customer receivables,
- anticipate late payments,
- be up to date with supplier payments.
ℹ️ When should it be used?
The trial balance is often produced at the time of interim accounting statements or at the close of the financial year. Statutory auditors generally use them as a support tool.
How to read and interpret a trial balance?
The trial balance takes the form of a 5-column table, as seen above, which summarizes the company's accounts over a given period.
It lists each account with its balance, the result of the difference between credit and debit.
From left to right, here's how to read the contents of each column:
- the account number,
- the account name (or heading),
- the amount of debit movements on this account,
- the amount of credit transactions on this account,
- the account balance, i.e. the difference between debit and credit.
💡 A balance is in debit if the total debits exceed the total credits. Conversely, a balance is in credit if total debits are less than total credits.
The balance lists all movements concerning the company, i.e. :
- purchases and sales,
- receivables and payables.
The trial balance establishes the balance of all impacted accounts over the period in question. It may cover :
- balance sheet accounts,
- management accounts.
When reading your trial balance, you need to identify significant movements, especially if you compare the balances of the accounts for the current period with the previous period.
☝️ Try to spot any discrepancies and variations, and identify their causes. They may :
- result from an oversight,
- reveal a clerical error,
- illustrate a change that needs to be deciphered, etc.
This search for explanations provides keys to understanding.
Last but not least, make sure that the total amount of debits corresponds to the total amount of credits, which reflects a good balance in the accounts. Thanks to this mirror-like dynamic, you can analyze your company's financial and accounting situation in real time.
How do you create a trial balance?
To draw up your trial balance, you need to have finished entering your transactions. These entries are taken from your accounting ledger. In your trial balance, enter each account in ascending order by account number: from class 1 to class 7.
You can also use accounting software to create your trial balance. What are the advantages of these tools?
- They automate the production of accounting documents, including the trial balance;
- they save you time and reduce the risk of errors by automatically entering transactions on the basis of previously entered data;
- they automatically link your account entries to the right accounting account, with bank reconciliation functionality.
These SaaS software packages are updated automatically and free of charge by the publishers to ensure that your accounting always complies with the latest legal requirements. They include :
- Itool accounting,
- Sage 100c accounting,
These online accounting software packages help you draw up your accounting balance, as well as all your accounting documents. We look forward to hearing from you!
The trial balance, an essential document
The trial balance may not be compulsory, but it is essential: for managing your cash flow, balancing your accounts or drawing up your financial statements. Accounting software programs generate them in such a way as to facilitate their preparation, analysis and synthesis.