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A trial balance is a list of all the general ledger accounts (both revenue and capital) contained in the ledger of a business. This list will contain the name of each nominal ledger account and the value of that nominal ledger balance. Each nominal ledger account will hold either a debit balance or a credit balance. The debit balance values will be listed in the debit column of the trial balance and the
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt ...
value balance will be listed in the credit column. The trading profit and loss statement and
balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
and other financial reports can then be produced using the ledger accounts listed on the same balance.

# History

The first published description of the process is found in
Luca Pacioli Fra Luca Bartolomeo de Pacioli (sometimes ''Paccioli'' or ''Paciolo''; 1447 – 19 June 1517) was an Italian mathematician, Franciscan friar, collaborator with Leonardo da Vinci, and an early contributor to the field now known as accounting ...
's 1494 work ''
Summa de arithmetica ' (''Summary of arithmetic, geometry, proportions and proportionality'') is a book on mathematics written by Luca Pacioli and first published in 1494. It contains a comprehensive summary of Renaissance mathematics, including practical arithmeti ...
'', in the section titled ''Particularis de Computis et Scripturis''. Although he did not use the term, he essentially prescribed a technique similar to a post-closing trial balance.

# Usage

The purpose of a trial balance is to prove that the value of all the debit value balances equals the total of all the credit value balances. If the total of the debit column does not equal the total value of the credit column then this would show that there is an error in the nominal ledger accounts. This error must be found before a profit and loss statement and balance sheet can be produced. Hence trial balance is important in case of adjustments. Whenever any adjustment is performed run trial balance and confirm if all the debit amount is equal to credit amount. The trial balance is usually prepared by a bookkeeper or accountant who has used
daybooks Day Book may refer to: * '' The Day Book'', a newspaper in Chicago 1911–1917 * '' Weekly Day Book'', a newspaper which primarily existed to propagate white supremacist ideas, 1848–1879 * General journal, or day book **a day book in bookkeeping ...
to record financial transactions and then post them to the nominal ledgers and personal ledger accounts. The trial balance is a part of the
double-entry bookkeeping Double-entry bookkeeping, also known as double-entry accounting, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry to ...
system and uses the classic 'T' account format for presenting values.

# Limitations

A trial balance only checks the sum of debits against the sum of credits. That is why it does not guarantee that there are no errors. The following are the main classes of errors that are not detected by the trial balance. *An error of original entry is when both sides of a transaction include the wrong amount. For example, if a purchase invoice for £21 is entered as £12, this will result in an incorrect debit entry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for £9 less, so the total of both columns will be £9 less, and will thus balance. *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. A variation of this error is omitting one of the ledger account totals from the trial balance (but in this case the trial balance will not balance). *An error of reversal is when entries are made to the correct amount, but with debits instead of credits, and vice versa. For example, if a cash sale for £100 is debited to the Sales account, and credited to the Cash account. Such an error will not affect the totals. *An error of commission is when the entries are made at the correct amount, and the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type. For example, if fuel costs are incorrectly debited to the postage account (both expense accounts). This will not affect the totals. This can also occur due to confusion in revenue and capital expenditure. *An error of principle is when the entries are made to the correct amount, and the appropriate side (debit or credit), as with an error of commission, but the ''wrong'' type of account is used. For example, if fuel costs (an expense account), are debited to stock (an asset account). This will not affect the totals. *Compensating errors are multiple unrelated errors that would individually lead to an imbalance, but together cancel each other out.

# References

{{reflist Financial statements Accounting terminology de:Zwischenberichterstattung#Zwischenberichterstattung und internes Berichtswesen