Trial Balance

Definition

The financial accounting term trial balance refers to a listing of all accounts found in the company's general ledger, along with the balance found in each account.  Companies conduct both an unadjusted and post-closing trial balance as part of the accounting cycle.

Explanation

While it's possible for a company to go through a trial balance process at any time, the two most common occurrences during the accounting cycle include:

  • Unadjusted Trial Balance:  this occurs after journal entries are posted to the general ledger.  The purpose of this exercise is to prove the ledger's debits are equal to credits, while also producing a list of all accounts that may be subject to adjustments later in the accounting cycle.
  • Post Closing Trial Balance:  following any adjustments and closing of the company's accounts, a subsequent listing is produced to demonstrate that all debits and credits have been correctly posted to the company's income summary.

Companies may also produce what is known as an adjusted trial balance, which occurs after making the adjusting entries and prior to the financial close.

Related Terms

accounting cycle, journalization, adjusting entry, financial close