Posting Trial Balance
General Ledger Journals
Trial Balance
After transactions have been recorded in the Journals, they are then transferred (posted) to the General Ledger Accounts. After transactions have been posted to the General Ledger, a Trial Balance is prepared.
We used a Trial Balance in an earlier lesson to check our postings. I just didn't tell you at the time. Let's review the formal definition. A Trial Balance is a listing of all the accounts appearing in the General Ledger with the dollar amounts of the debit or credit balance of each. It is used to make sure the books are "in balance" - total debits equal total credits.
A Trial Balance is just a Worksheet that bookkeepers and accountants prepare from the General Ledger to check that the books (General Ledger) are in balance.
Debit Account Balances = Credit Account Balances
Let's take a look at ABC's Trial Balance.
| ABC Mowing Trial Balance Worksheet | ||
| Account | Debit Balances | Credit Balances |
| Asset Accounts | 5080 | |
| Cash | 5080 | |
| Accounts Receivable | 1600 | |
| Inventory-Office Supplies | 100 | |
| Mowing Equipment | 12500 | |
| Liability Accounts | ||
| Accounts Payable | 2060 | |
| Note Payable-Bank | 10000 | |
| Equity Accounts | ||
| Owner's Capital | 7500 | |
| Owner Draws | 1100 | |
| Revenue Accounts | ||
| Mowing Revenue | 1205 | |
| Expense Accounts | ||
| Mulch Expense | 160 | |
| Advertising Expense | 225 | |
| Totals | 20765 | 20765 |
As you can see, the Debit Balance Accounts equal the Credit Balance Accounts.
Normal Balances for the Types of Accounts
Just to keep you on your toes - do you recall what type of accounts normally have a debit or credit balance ?
- Assets, Expenses, and Draws normally have Debit Balances.
- Liabilities, Owner's Capital, and Revenue accounts normally have Credit Balances.
Need proof ?
Refer back to our preceding Trial Balance for ABC. The Trial Balance has a column for Debit Balance Accounts and a column for Credit Balance Accounts.
Refer back to our preceding Trial Balance for ABC. The Trial Balance has a column for Debit Balance Accounts and a column for Credit Balance Accounts.
Sure enough, our Assets, Owner's Draws, and Expense Type of Accounts are listed in the Debit Balance Column. Likewise, our Liability, Owner's Capital, and Revenue Type of Accounts are listed in the Credit Balance Column.
How do you initially determine that an Account has a Debit or Credit Balance ? This is simply a matter of determining if the Account has more Debit Amounts Posted or More Credit Amounts Posted. If More Debits Than Credits have been posted to the Account, the Account will have a Debit Balance. Likewise, if More Credits Than Debits have been posted to the Account, the Account will have a Credit Balance.
We'll use ABC's Trial Balance later to prepare our Formal Financial Statements.
Before we move on to the next lesson, since they say that a picture’s worth a thousand words, let’s use a picture to illustrate the flow of information (business transactions) into our bookkeeping records.
You're right Financial Statements have not yet been discussed; but, guess what's coming next ?
Bookkeeping's Flow Of Information
| Source Documents Provide the initial data about business transactions |
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| Journals Use the information from the Source Documents to create a chronological listing of all business transactions and detailed information about each transaction |
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| General Ledger Uses the information transferred from the Journal(s) to summarize the data into individual accounts |
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| Trial Balance Uses the information from the General Ledger to summarize and check the data to use for preparing Financial Statements |
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| Financial Statements Uses the summarized data contained in the Trial Balance to prepare the business's Financial Reports |
