Again, this is simply a sum of all the debits of your accounts for that period. A thorough understanding of these documents can reduce your error rate — not to mention your stress levels. If the difference contains a 3 it might indicate that a entry error has been made on a numerical key pad. Numerical keypads are arranged in three rows of three columns such that working down a column there is a difference of 3 between rows. For example on a keypad the number 1 is one row below the number 4, a difference of 3; likewise the number 5 is one row below the number 8, again a difference of 3.
The following is the Statement of Retained Earnings for Printing Plus. Total expenses are subtracted from total revenues to get a net income of $4,665. If total expenses were more than total revenues, Printing Plus would have a net loss rather than a net income. This net income figure is used to prepare the statement of retained earnings. In a nutshell, a trial balance is an informal accounting statement, prepared with the help of ledger account balances. While a trial balance can provide a helpful snapshot of your financial position, it’s not a foolproof method of preventing all possible mistakes.
What are the Uses of a Trial Balance?
The debit should have been to the utilities expense account, but the trial balance will still show that the total amount of debits equals the total number of credits. The trial balance is strictly a report that is compiled from the accounting records. A trial balance is a financial report showing the closing balances of all accounts in the general ledger at a point in time.
To get that balance, you take the beginning retained earnings balance + net income – dividends. If you look at the worksheet for Printing Plus, you will notice there is no retained earnings account. That is because they just started a trial balance will balance even if business this month and have no beginning retained earnings balance. Take a couple of minutes and fill in the income statement and balance sheet columns. The adjustments total of $2,415 balances in the debit and credit columns.
Step-by-step explanation
If you check the above trial balance again, you’ll realize that this list of balances is also a summary of all transactions made during the accounting period. This fact provides a reasonable assurance that every debit entry in the ledger accounts does have a corresponding credit entry and that no arithmetical error has been made during the balancing process. It is prepared on a particular date to summarize the records and check the arithmetical accuracy of the books of accounts. Note that for this step, we are considering our trial balance to be unadjusted. The unadjusted trial balance in this section includes accounts before they have been adjusted.
- However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes.
- Treat the income statement and balance sheet columns like a double-entry accounting system, where if you have a debit on the income statement side, you must have a credit equaling the same amount on the credit side.
- A trial balance can be used to detect any mathematical errors that have occurred in a double entry accounting system.
- In the accounting cycle, preparing the trial balance comes right after posting journal entries to the ledger’s accounts, and just before preparing the financial statements.
- More detailed definitions can be found in accounting textbooks or from an accounting professional.
- A trial balance is a list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business.
Since this is the first month of business for Printing Plus, there is no beginning retained earnings balance. Notice the net income of $4,665 from the income statement is carried over to the statement of retained earnings. Dividends are taken away from the sum of beginning retained earnings https://www.bookstime.com/articles/straight-line-depreciation and net income to get the ending retained earnings balance of $4,565 for January. This ending retained earnings balance is transferred to the balance sheet. If you’ve followed the above method, you can simply and quickly calculate all of the credit balances in your credit entry column.
