The trial balance explained

A trial balance is a list of every ledger account balance at a given date, with debit balances in one column and credit balances in the other. Because every transaction is recorded with equal debits and credits, the two totals should agree. A balanced trial balance proves the books are arithmetically consistent, not that they are right, and it is the starting point from which year end adjustments are made and the accounts are prepared.

What is a trial balance?

Double entry bookkeeping records every transaction twice: once as a debit and once as a credit, for the same amount. A sale on credit, for example, debits the customer’s account (trade receivables) and credits sales. If that discipline is followed throughout the period, the sum of all debit balances must equal the sum of all credit balances. The trial balance is the report that tests this, and in practice it is the single page an accountant works from when turning bookkeeping into accounts.

Accounting software produces a trial balance instantly from the nominal ledger. In a manual system it is extracted by balancing off each ledger account and listing the closing balances.

Which balances go on which side?

Debit balances	Credit balances
Assets: equipment, vehicles, stock, trade receivables, cash at bank, prepayments	Liabilities: trade payables, loans, VAT owed, PAYE owed, accruals
Expenses: purchases, wages, rent, insurance, depreciation	Income: sales, interest received, other income
Drawings (for a sole trader or partnership)	Capital or share capital and retained profits

A balance on the unexpected side is a warning sign. A credit balance on the bank account means an overdraft, which is fine if real but often signals unposted receipts. A debit balance on a supplier account may be a duplicate payment. A director’s current account that has turned from credit to debit means the director owes the company money, with tax consequences explained in director’s loan account explained.

What does a balanced trial balance prove, and what does it not?

ACCA’s technical guidance on suspense accounts and error correction groups errors by whether they affect the balance.

Errors that make the trial balance disagree

• A figure transposed on one side only, for example £540 debited and £450 credited.
• Two debits or two credits posted for one transaction.
• Only one side of a double entry posted.

Errors a trial balance will not reveal

• Omission: a transaction not recorded at all.
• Principle: an item posted to the wrong type of account, such as a new van posted to motor repairs.
• Commission: an item posted to the wrong account of the right type, such as one customer’s receipt credited to another customer.
• Reversal: the right accounts and amount, but debit and credit swapped.
• Wrong figure on both sides: the same incorrect amount used for the debit and the credit.

Two offsetting mistakes of the same amount can also cancel out. That is why a trial balance that agrees is the beginning of the review, not the end of it.

What is a suspense account and how is it cleared?

ACCA describes a suspense account as a temporary holding account for a bookkeeping entry. It appears either when a manual system is forced to balance by posting the difference to suspense, or when a bookkeeper deliberately posts an amount there while the correct treatment is worked out. Each error is then corrected with a journal that uses the suspense account for one side and the correct account for the other, until the suspense account has a nil balance.

Illustration only. A purchase invoice for £450 is posted as a £540 debit to purchases and a £450 credit to the supplier. Debits now exceed credits by £90 and the difference is posted as a £90 credit to suspense. The correction is a debit of £90 to suspense and a credit of £90 to purchases, which clears suspense and leaves purchases at £450. A difference that divides exactly by 9, as £90 does, is a common sign of a transposed figure.

A suspense balance should never survive to the final accounts. If the cause cannot be found, the books are not reliable.

How does the trial balance become a set of accounts?

The trial balance at the year end is the initial trial balance. ACCA’s syllabus guidance describes the process as adjusting the initial trial balance before extracting a final trial balance. The usual adjustments are:

• bank reconciliation differences, so that cash agrees to the statement (see bank reconciliation);
• accruals and prepayments;
• closing stock, valued as explained in stock valuation;
• depreciation of fixed assets;
• write offs and allowances for bad debts;
• corrections of misposted items and the clearing of any suspense balance;
• tax liabilities, such as corporation tax for a company.

Practitioners often set this out as an extended trial balance, with columns for the initial balances, the adjustments, and the resulting profit and loss and balance sheet figures. Each line of the final trial balance then maps to a line in the profit and loss account or balance sheet. For a company, the profit figure becomes the starting point for the corporation tax computation; see corporation tax explained.

Does accounting software remove the need to check?

No. ACCA’s guidance on computerised systems says they streamline recording and reduce the risk of error, and are unlikely to allow a single sided entry, so the trial balance in software will nearly always balance. But manual journals are still required and can introduce errors, and every error type in the list above can still happen. The useful checks in a software system are therefore reconciliations rather than the balance itself: bank and credit card accounts to statements, the sales and purchase ledgers to customer and supplier statements, the VAT control account to the returns filed, and payroll liabilities to the payroll records.

What does the law require of the underlying records?

There is no statutory form of trial balance, but company law sets the standard the records behind it must meet. Section 386 of the Companies Act 2006 requires every company to keep adequate accounting records, sufficient to show and explain its transactions, to disclose with reasonable accuracy at any time its financial position, and to enable the directors to ensure the accounts comply with the Act. Section 393 says the directors must not approve accounts unless they are satisfied that they give a true and fair view of the company’s assets, liabilities, financial position and profit or loss.

A trial balance with an unexplained suspense balance, unreconciled bank accounts or a negative stock figure does not meet that standard, whatever the software says. Keeping the year end trial balance, the adjustment journals and the supporting schedules together creates the audit trail that explains how every figure in the accounts was reached.

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Related Accountapedia entries

• Suspense accounts: what they are and how to clear them
• Types of bookkeeping error
• Double entry bookkeeping explained
• The general ledger and subsidiary ledgers
• Sales and purchase ledger control accounts

Sources

• ACCA: Suspense accounts error correction
• ACCA: Computerised accounting system
• legislation.gov.uk: Act 2006 c. 46, section 386
• legislation.gov.uk: Act 2006 c. 46, section 393

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.