The Trial Balance is a simple listing of the nominal (otherwise called general ledger) accounts with the debit balances posted into a debit column and the credit balances posted into the credit column. Although it looks like an account because it has a debit column and a credit column, it is not an account but merely a list of account balances. Simply put, it ensures that for every debit amount there are equal credit amounts in the nominal or general ledger and vice versa.

Looking beyond the mechanics of the Trial Balance to its' purpose, it plays a key part in ensuring that for every recorded movement of value there is an explanation of that value in the nominal or general ledger.

Examples

When you pay cash out of the safe to the window cleaner you credit the Petty Cash Account in your nominal ledger which records the reduction in money in your safe but you also need to record the event as an expense for later management information so you debit Cleaning account in the nominal ledger for the same amount.

You pay a cheque (check) to purchase a new computer. You make a record on the credit side of your Bank Account in your nominal ledger to record the reduction of the balance of your bank account but you also need to make a debit entry for the same value in your Office Equipment Account to record that the value has now been moved into the computer (an asset).

You make a sale and get paid by cheque (check) which you bank. You need to record the amount of the cheque as a debit in the Bank Account in the nominal ledger (because the Whatever Bank is now more of a debtor to you) but you also need to record the sale for management information purposes so you credit the Sales Account in the nominal ledger for the same amount.

Each account in the nominal or general ledger has a debit column and a credit column (like your bank account). (A ledger is simply a number of accounts collected together for a specific purpose - other ledgers include the Purchase and Sales Ledgers.) In the nominal (or general) ledger individual accounts are kept for each item of expenditure or income, asset or liability that needs to be monitored eg. electricity account, sales account, premises account, bank account.

Whenever something happens, it affects an asset account to increase or reduce the assets and that needs to be explained with another entry in an income or expenditure account. One is recorded as a debit and the other is recorded as a credit. The Trial Balance summarizes the end result of all these debit and credit entries to ensure no single sided entries have been made in the nominal or general ledger.

And there it is - the Trial Balance!

Good Luck! More to be posted soon!

     Rob