A trial balance is a statement that compiles the balances of all ledgers into debit and credit columns to ensure that the company’s bookkeeping system is mathematically correct.
There are various methods to prepare a trial balance, each with its own procedural approach.
Here are the three effective methods for preparing a trial balance:
1. Total Method
In the Total Method, the trial balance shows the total of debits and credits from each ledger account. This method allows for the preparation of a trial balance as soon as the ledger account is totaled.
This method saves time when balancing the ledger accounts because the balance can be found in the trial balance. The difference between the totals of each ledger account represents the account’s balance.
This method is rarely used because the only requirement for preparing financial statements is the net balance of the ledger account.
As a result, the trial balance generated using this method cannot be used directly to prepare the financial statements.
Steps:
- List the total debit amounts of each account in the debit column of the trial balance.
- List the total credit amounts of each account in the credit column of the trial balance.
- Calculate the total of both columns.
- Verify that the totals of the debit and credit columns are equal.
Example:
Assume that the following ledger account has total debit and credit at the end of an accounting period.
- Cash: Debit $12,000 and Credit $9,000
- Accounts Receivable: Debit $15,000 and Credit $3,000
- Inventory: Debit $10,000
- Equipment: Debit $20,000
- Accounts Payable: Credit $8,000 and Debit $4,000
- Salaries Payable: Credit $3,000
- Capital: Credit $40,000
- Sales Revenue: Credit $20,000
- Cost of Goods Sold: Debit $11,000
- Salaries Expense: Debit $6,000
- Rent Expense: Debit $5,000
In the total method, we list the total debits and credits of each account.
Trial Balance
| Account | Total Debits ($) | Total Credits ($) |
| Cash | 12,000 | 9,000 |
| Accounts Receivable | 15,000 | 3,000 |
| Inventory | 10,000 | |
| Equipment | 20,000 | |
| Accounts Payable | 4,000 | 8,000 |
| Salaries Payable | 3,000 | |
| Capital | 40,000 | |
| Sales Revenue | 20,000 | |
| Cost of Goods Sold | 11,000 | |
| Salaries Expense | 6,000 | |
| Rent Expense | 5,000 | |
| Total | $83,000 | $83,000 |
2. Balance Method
In the Balance Method, only the ending balances of each ledger account are listed. Accountants commonly use this method to prepare financial statements.
Steps:
- List the debit balances of each account in the debit column of the trial balance.
- List the credit balances of each account in the credit column of the trial balance.
- Calculate the total of both columns.
- Verify that the totals of the debit and credit columns are equal.
Example:
In the Balance Method, we list only the ending balances of each account.
Trial Balance
| Account | Debit Balance ($) | Credit Balance ($) |
| Cash | 3,000 | |
| Accounts Receivable | 12,000 | |
| Inventory | 10,000 | |
| Equipment | 20,000 | |
| Accounts Payable | 4,000 | |
| Salaries Payable | 3,000 | |
| Capital | 40,000 | |
| Sales Revenue | 20,000 | |
| Cost of Goods Sold | 11,000 | |
| Salaries Expense | 6,000 | |
| Rent Expense | 5,000 | |
| Total | $67,000 | $67,000 |
3. Combined Method
The Combined Method is a hybrid of the Total and Balance methods. It lists both the totals and the balances of each account.
Steps:
- List the total debits and total credits of each account.
- List the ending debit or credit balance of each account.
- Calculate the total of the debit and credit columns for both totals and balances.
- Verify that the totals of both sets of debit and credit columns are equal.
Example:
In the combined method, we list both the total debits and credits, as well as the ending balances.
Trial Balance
| Account | Total Debits ($) | Total Credits ($) | Debit Balance ($) | Credit Balance ($) |
| Cash | 12,000 | 9,000 | 3,000 | |
| Accounts Receivable | 15,000 | 3,000 | 12,000 | |
| Inventory | 10,000 | 10,000 | ||
| Equipment | 20,000 | 20,000 | ||
| Accounts Payable | 4,000 | 8,000 | 4,000 | |
| Salaries Payable | 3,000 | 3,000 | ||
| Capital | 40,000 | 40,000 | ||
| Sales Revenue | 20,000 | 20,000 | ||
| Cost of Goods Sold | 11,000 | 11,000 | ||
| Salaries Expense | 6,000 | 6,000 | ||
| Rent Expense | 5,000 | 5,000 | ||
| Total | $83,000 | $83,000 | $67,000 | $67,000 |
Each method for preparing a trial balance serves a different purpose and offers various levels of detail and verification.
The Balance Method is the most straightforward and widely used, whereas the Combined method provides more detailed information, especially at the end of an accounting period.
A trial balance should be prepared and reviewed regularly to ensure accurate financial records and financial statement reliability.
You can also read:
- 10 key features of trial balance [With PDF]
- 10 key benefits of trial balance [With PDF]
- 7 important limitations of trial balance [With PDF]
