![]() Not so very long ago, when accounting was calculated on paper, the trial balance played a central role in keeping tabs on the company’s financials. It isn’t shared with investors or outside stakeholders in the way that financial statements are. It’s a fundamental part of the accounting process, and completing a trial balance is one of the final steps for closing the books at the end of an accounting period.Ī trial balance is an internal document, generally. In other words, it’s a summation of all of the financial transactions that have occurred during that stage. What is a trial balance, exactly, and what purpose does it play in the accounting cycle? In this post, we’ll be covering all that, and more!Ī trial balance (TB) is a summary of the debits and credits of all the ledger accounts within an organization over a given period. ![]() It’s a report that allows a company to quickly gauge its financial health, and spot red flags before they become huge problems. For centuries, double-entry bookkeeping has allowed businesses to identify errors in its books, and continually reap a steady profit, year after year.Ī trial balance plays a central part in this time-tested system. Fortunately, there are tools and systems built to handle this financial complexity. Once a business has an empty cash register and negative balances on its bank statements, it has no choice but to shut the door for good.īut this needn’t be the case. A frazzled owner who burns the candle at both ends may deliver a fantastic product, but run things amok on the financial end of things. It’s sometimes the way of things that a business presents a united front, but a glimpse behind the scene reveals a tangled mess.Įvery business regularly engages in so many transactions, from making sales, to buying equipment and supplies, to paying taxes, employees and rent, that it’s a lot for anyone to keep up with.Īnd some people aren’t equipped to handle it at all. How could a business with a terrific product possibly fail? Have you ever dined at a cafe with mouthwatering dishes and lines out the door, then a week later returned to locked doors and a “For Lease” sign on the window? What is the Purpose of a Trial Balance in the Accounting Cycle?
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