Trial Balance: What It Is, How to Prepare It, and Common Errors

A trial balance is an internal accounting report that lists every account in the general ledger with its ending balance, sorted into a debit column and a credit column. If the two column totals match, the ledger’s double-entry arithmetic is internally consistent and you can move on to preparing financial statements. If they don’t, there’s an error to find before you go any further. Most businesses run three versions across the accounting cycle: an unadjusted trial balance, an adjusted one, and a post-closing one.

No federal law requires you to prepare a trial balance by that name. The IRS gives businesses broad discretion over their recordkeeping method and only requires that whatever system you use “clearly show your income and expenses.”¹ If you use double-entry bookkeeping, though, running a trial balance is the fastest way to catch arithmetic problems before they end up on a tax return.

What Goes on a Trial Balance

Every line comes from the general ledger. Each active account appears once, identified by name, with its ending balance for the period placed in either the debit or credit column based on its normal balance:

Assets and expenses normally carry debit balances.
Liabilities, equity, and revenue normally carry credit balances.

The format is three columns: account names on the left, debit balances in the middle, credit balances on the right. Accounts are usually listed by type, in the order assets, liabilities, equity, revenue, expenses.

One point that trips people up: if an account carries an abnormal balance (say, an overdrawn checking account that ordinarily sits on the debit side but currently shows a credit), enter it as it appears in the ledger. The trial balance reflects reality, not what you expect to see.

How to Prepare a Trial Balance

The procedure is the same whether you’re working on paper, in a spreadsheet, or checking output from accounting software.

Calculate ending balances. Go through every general ledger account and compute its net balance as of the reporting date. For a T-account, total each side and take the difference.
List each account. Transcribe every account with a non-zero balance into the left column, grouped by type.
Enter the balances. Place each ending balance in the debit or credit column according to how it appears in the ledger.
Total both columns. Add all debits, then add all credits.
Compare the totals. Equal totals mean the ledger’s arithmetic is consistent. Unequal totals mean there’s an error to track down before you go further.

Accounting software will usually generate the report automatically from live ledger balances, but the software only organizes what you gave it. A transaction coded to the wrong account at entry produces a trial balance that faithfully reproduces the mistake.

The Three Versions of a Trial Balance

You don’t prepare a trial balance just once per period. Each version serves a different step in closing the books.

Unadjusted Trial Balance

This is the first version, compiled after all daily transactions for the period have been posted but before any end-of-period adjustments. Its job is to catch obvious problems early: one-sided entries, transposition mistakes, addition errors. If debits and credits don’t match here, there’s no point recording adjustments on top of a broken ledger.

Adjusted Trial Balance

Once the unadjusted version balances, the accountant records adjusting entries for items that don’t trigger their own transaction: revenue earned but not yet billed, expenses incurred but not yet paid, prepaid costs to spread across periods, and depreciation on long-term assets. These adjustments bring the books in line with accrual-basis accounting under Generally Accepted Accounting Principles. The adjusted trial balance is prepared from the updated ledger, and its numbers are what you use to draft the income statement, balance sheet, and other financial statements.

Post-Closing Trial Balance

After the financial statements are done, the accountant closes the temporary accounts (revenue, expenses, dividends) by transferring their balances into retained earnings. The post-closing trial balance is prepared once those closing entries are posted. It should contain only permanent accounts: assets, liabilities, and equity. Any revenue or expense account still showing a balance means a closing entry was missed. This version confirms the ledger is clean and ready for the next period’s transactions.

What a Balanced Trial Balance Doesn’t Prove

Matching totals are reassuring but not proof that the books are right. Several categories of errors leave debits equal to credits and slip through unnoticed.

Errors of omission. A transaction left out of the books entirely. Neither side was recorded, so the totals still agree.
Errors of commission. The right amount posted to the wrong account of the same type, such as a payment applied to the wrong supplier. Individual balances are wrong; column totals still match.
Errors of principle. A transaction booked to the wrong type of account, such as recording a vehicle repair (an expense) as an addition to the vehicle asset account.
Errors of original entry. The wrong amount recorded on both sides. A $500 invoice entered as $50 on both the debit and credit still balances.
Compensating errors. Two separate mistakes that cancel out, such as overstating one expense by $600 and understating another by $600.
Complete reversal of entries. The correct amount posted, but with debit and credit swapped.

Catching these takes account-level review, reconciliation against bank statements and source documents, and often a second pair of eyes.

Finding the Error When Totals Don’t Match

When debits and credits disagree, the size of the difference often points to the type of mistake. Start with the quick checks before combing through the ledger line by line.

Quick Diagnostic Checks

Divide the difference by 9. If it divides evenly, you likely have a transposition error where two digits were swapped. All transposition errors produce differences that are multiples of 9. A $45 difference divided by 9 gives 5, the gap between the two transposed digits.
Divide the difference by 2. If the result matches an actual ledger entry, that entry may have been posted on the wrong side. A $300 credit posted as a debit creates a $600 discrepancy, so half the difference reveals the original amount.
Look for round-number differences. A discrepancy of exactly $0.01, $0.10, or $1.00 usually points to an addition or rounding error in the totals, not a posting mistake.

Systematic Search

If the quick checks don’t crack it, work through these steps in order:

Re-add the trial balance columns. Simple addition mistakes are common.
Verify every ledger account was included on the trial balance and that each balance is in the correct column.
Recalculate the ending balance of each ledger account.
Trace postings back to source documents. Work through one journal at a time, ticking off each posting as confirmed.

If the discrepancy is small and you’re up against a deadline, you can park the unresolved difference in a suspense account so the trial balance technically balances, then clear the suspense account once you find the error. An unexplained balance sitting in a suspense account across multiple periods is a red flag to auditors.

When a Small Difference Still Matters

Not every discrepancy needs the same level of attention, and accountants use the concept of materiality to decide how urgently to chase one down. Size relative to the overall financial picture matters, but so do the consequences of where the error lands.

For a private business, an error that causes you to underreport gross income by more than 25% extends the IRS’s audit window from three years to six.² A bookkeeping mistake that looks small on paper can have outsized consequences depending on which line of the financial statements it touches.

For publicly traded companies, the SEC has said in Staff Accounting Bulletin No. 99 that exclusive reliance on any numerical threshold (such as the common 5% of net income rule of thumb) “has no basis in the accounting literature or in law.” Both quantitative size and qualitative factors, such as whether the error masks an earnings trend or affects loan covenant compliance, decide whether a misstatement is material.³

How Long to Keep Trial Balance Records

The IRS doesn’t name trial balances specifically, but it requires you to retain any records that support income, deductions, or credits on your tax return until the statute of limitations for that return expires.² A trial balance feeds directly into the financial statements that support your return, so the general retention periods apply:

Three years: The standard period, measured from the date you filed the return or its due date, whichever is later.
Six years: If you underreported gross income by more than 25%.
Seven years: If you claimed a loss from worthless securities or a bad debt deduction.
Indefinitely: If you did not file a return or filed a fraudulent one.

Insurance companies, creditors, and other parties may require you to keep records longer than the IRS does.² Holding at least seven years of trial balances and their supporting ledgers is a sensible default that covers most situations.

1
Internal Revenue Service. Publication 583 – Starting a Business and Keeping Records
2
Internal Revenue Service. How Long Should I Keep Records
3
U.S. Securities and Exchange Commission. Staff Accounting Bulletin No. 99 – Materiality