What does the trial balance tell us about the company’s finances that the balance sheet doesn’t?
The balance sheetshows only those general ledger accounts that track the law firm’s assets, liabilities, and equity as of a specific date. The trial balance shows all general ledger accounts on one page, with the accounts that increase when debited shown on the left side and the accounts that increase when credited on the right side. The total amount of debits should equal the total number of credits shown. If the two amounts don’t match, that indicates there was an error when a transaction was entered into the general ledger.
The general ledger balances found on the trial balance are used to generate your firm’s financial statements, e.g., to generate your balance sheet and profit and loss (income) statement. So, it is important that you fix all general ledger errors and verify that the trial balance is actually balanced prior to generating those statements.
Computerized accounting programs automatically ensure that financial transactions are in balance when entered into the general ledger, so trial balances have less value to businesses using such systems. If your law firm chooses to keep its books manually, however, the trial balance is a very important tool you will use every month to help you find and fix any errors that occurred when entering transactions into the general ledger.
1. Balance sheet
2. What is the difference between a trial balance and a balance sheet?
3. The purpose of a trial balance