Trial Balance

Definition

A trial balance is a report that lists every general ledger account and its ending balance, arranged in two columns (debit and credit), at a specific date. If total debits equal total credits, the bookkeeping arithmetic is internally consistent. A trial balance is used at month-end, at year-end before and after adjusting entries, and as the starting point for preparing the financial statements and the T2 return.

Key rules

• Three versions are used in the accounting cycle: unadjusted, adjusted, and post-closing.
• Debit column totals must equal credit column totals. A mismatch proves there is an error but an agreement does not prove the books are correct.
• Accounts typically appear in GIFI or chart-of-accounts order: assets, liabilities, equity, revenue, expenses.
• Temporary accounts (revenue, expenses, dividends declared) appear on the adjusted trial balance but should be zero on the post-closing trial balance.
• For a T2 return, the adjusted trial balance feeds Schedule 100 (balance sheet) and Schedule 125 (income statement) after being mapped to GIFI codes.

Example

Adjusted trial balance for a one-person BC consulting corporation at December 31:

Account                              Debit        Credit
Cash                                18,400
Accounts Receivable                  4,200
Prepaid Expenses                       800
Computer Equipment                   3,500
Accumulated Depreciation. Computer                1,050
Accounts Payable                                   2,100
GST Payable                                        1,180
Shareholder Loan Payable                           3,000
Share Capital                                        100
Retained Earnings. Opening                        6,470
Consulting Revenue                               118,000
Salaries Expense                    70,000
Rent Expense                         9,600
Software Expense                     6,200
Professional Fees                    3,000
Depreciation Expense                   700
Meals & Entertainment (50%)          1,500
Bank Charges                           200
                                   -------      -------
                                   118,100      131,900

Common mistakes

• Using an unadjusted trial balance as the basis for financial statements. Adjusting entries for accruals, deferrals, and depreciation must be posted first.
• Assuming equal totals mean no errors. A transaction posted to the wrong account, or omitted entirely, will not break the totals.
• Forgetting to re-run the report after late adjustments. A trial balance is only as current as the last posting.
• Mapping the trial balance to GIFI codes incorrectly, which propagates errors into Schedule 100 and Schedule 125.
• Carrying temporary account balances into the new year because closing entries were skipped.

Related concepts

The trial balance is the bridge between the general ledger and the financial statements. It expresses the accounting equation in list form and is the checkpoint that precedes the balance sheet and income statement.