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.
Sign up now to get more tips and news from CosmoLex
- What Every Lawyer Should Know About Operating and Trust Accounts
- What Are the Three Bank Accounts Every Law Firm Should Have?
- Should I Deposit a Retainer into an Operating Account or a Trust Account?
- 9 Tips to Boost Law Practice Success by Getting Back to Basics
- How to Keep Your Three-Way Reconciliation Accurate and Efficient