A trial balance is a document that is prepared that confirms whether your books are balanced or if there are errors that need to be addressed. It is a very important step in the bookkeeping process as it ensures accuracy in your records. The trial balance is prepared at the end of a specific period (usually monthly, but it can be done for any period needed) after all financial transactions have been recorded and the journal totals are entered into the General Ledger. If you use accounting software, such as QuickBooks Online or Xero, the trial balance is prepared for you, you just have to run the report.
The trial balance lists all of your business’s accounts and their totals. The totals are listed as either a debit or credit, based on their “normal” balance. Assets, withdrawals, and expenses normally have debit balances, while liabilities, equity, and revenue normally have credit balances. Once all are listed, the totals of each column should match, debits = credits. If they do not, there is an error somewhere in your books and you will have to find it and make an adjustment entry to fix it. Once the trial balance shows debits equaling credits, you can produce the financial statements for the period.