When looking at the trial balance meaning, it’s helpful to define what would go into each side of the equation. Harold Averkamp has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. Compensating errors are multiple unrelated errors that would individually lead to an imbalance, but together cancel each other out. The accounting cycle records and analyzes accounting events related to a company’s activities. Kirsten Rohrs Schmitt is an accomplished professional editor, writer, proofreader, and fact-checker.

If, for instance, a credit transaction in one account is $100 too high, and if in another a debit transaction is $100 too high, the trial balance will still balance. The firm makes an entry as a debit to an account when it should have a credit, and its corresponding co-transaction registers as a credit when it should be a debit. The paired debit and credit figures for a transaction may both match but still be incorrect. Such a mistake may be accidental, or it may be deliberate deception by the accountant. When the difference between debit and credit totals is divisible neither by 9 or by 2, it is possible that a single “debit” or “credit” balance is missing from the account lists. Or the most part, line items on the period’s Balance sheet and Income statement are nothing more than account names.

What is a Trial Balance?

It allows you to identify discrepancies in your account totals, produce financial statements and ensure that your accounts balance for a given period of time. Although dollar signs are not used in journals or ledger accounts, trial balances generally include dollar signs next to the first figure in each column and next to each column’s total. Trial balances usually include accounts that had activity during the accounting period but have a zero balance at the end of the period. Today, credit balances and debit balances are checked automatically, mostly eliminating the need to create trial balance documents.

Note especially that the difference between debit and credit totals across the account’s history, represents the current account balance. A debit could have been entered in the wrong account, which means that the debit total is correct, though one underlying account balance is too low and another balance is too high. For example, an accounts payable clerk records a $100 supplier invoice with a debit to supplies expense and a $100 credit to the accounts payable liability account. The debit should have been to the utilities expense account, but the https://www.bookstime.com/ will still show that the total amount of debits equals the total number of credits. An error of omission is when a transaction is completely omitted from the accounting records. As the debits and credits for the transaction would balance, omitting it would still leave the totals balanced.

How a Trial Balance Works

When the trial balance balances, as in the previous section, the Balance sheet will also balance. Exhibit 3 also shows the impact of debit and credit transactions in each of account type.