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The statement of retained earnings is prepared before the balance sheet because the ending retained earnings amount is a required element of the balance sheet. The following is the Statement of Retained Earnings for Printing Plus. Each month, you prepare a trial balance showing your company’s position. After preparing your trial balance this month, you discover that it does not balance. The debit column shows $2,000 more dollars than the credit column. Note that for this step, we are considering our trial balance to be unadjusted.
While a trial balance is used for internal management purposes, a balance sheet is an essential component of your company’s financial statements. It is important for the trial balance to tally, but if it does not tally, it implies that certainly there are some errors in the books of accounts. So, it would help to first make the businessman aware that maybe a few postings have not been well posted or posted with the wrong amount or in the wrong account, and many other possible errors could be there. So, once the errors are allocated, then corrections could be done to remove the errors. The accounting equation is the basis of the balance sheet, which shows the total of assets, in this case £10,150 balancing with the total of capital and liabilities £10,150.
Trial balance example
A trial balance includes a list of all general ledger account totals. Each account should include an account number, description of the account, and its final debit/credit balance. In addition, it should state the final date of the accounting period for which the report is created.
The main reason for the trial balance to match is the ‘Double Entry System’ of accounting. According to the double entry system, every transaction is recorded twice, once on the debit side and the other on the credit side. So, for every debit entry, there is a corresponding credit entry.
What is a trial balance?
Here, computers can be particularly helpful in maintaining the detailed and aggregated data in perfect harmony. All accounts having an ending balance are listed in the trial balance; usually, the accounting software automatically blocks all accounts having a zero balance from appearing in the report. The report will not uncover situations in which an entry should have been made, but was not. This type of error can only be detected by comparing individual journal entries to a checklist of entries that should be made within each reporting period. Compare the total values to determine whether your balances are equal. This means you don’t need to adjust anything with your trial balance.
The balance on the bank account reflects that £10,000 has come into this asset account and £850 has gone out to leave the debit balance of £9,150. This is why on the opposite side to the ‘Balance c/d’ figure, a ‘Balance b/d’ figure is needed to represent a closing debit balance. For example, an entry in which the law firm bookkeeping debit and credit should both have been $100 is instead entered as $1,000 to both the debit and credit accounts. This means that the entry is balanced, and so would not be spotted via a trial balance review – and yet is still incorrect. Not all accounts in the chart of accounts are included on the TB, however.
Locating Errors
Since each transaction was journalized in a way that insured that debits equaled credits, one would expect that this equality would be maintained throughout the ledger and trial balance. If the trial balance fails to balance, an error has occurred and must be located. It is much better to be careful as one proceeds, rather than having to go back and locate an error after the fact. Be aware that a “balanced” https://www.digitalconnectmag.com/a-deep-dive-into-law-firm-bookkeeping/ trial balance is no guarantee of correctness. For example, failing to record a transaction, recording the same transaction twice, or posting an amount to the wrong account would produce a balanced (but incorrect) trial balance. Even when the debit and credit totals stated on the trial balance equal each other, it does not mean that there are no errors in the accounts listed in the trial balance.
