Trial Balance Explained In 2 minutes (BN9)
Hello, my name is Eve from Business Nirvana. Today I would like to explain to you what a trial balance is and how you can use it to improve your business. The trial balance is one of the 3 main financial statements. The conventional layout of the trial balance is based on the principle of double-entry bookkeeping.
Don’t switch off. I am not planning to turn you into a fully fledged accountant. I am just going to give you a basic explanation of double entry bookkeeping.
The principle of double entry bookkeeping is based on the idea that everything has a double effect on your accounts. So for example, if you buy a desk for your office at a value of £100: your bank account will lower by £100 but on the other hand the value of your office equipment will increase by £100. And that is it.
Needless to say the value of your desk will depreciate in future years; but that is covered in another video.So this is why the trial balance layout has 2 columns referred to as Debit and credit.
Both columns should always add up to the exact same figure.
The trial Balance is the list of all the information that should be included within your Profit and loss statement and your Balance sheet. As a general rule, the figures at the top of the Trial Balance are reflected in your Balance sheet and the figures at the bottom of your trial balance are reflected in your Profit and Loss Statement.
The trial Balance shows the aggregate values throughout your financial year so it does not make sense to print a trial balance for 1 month only.
It is worth remembering that at the end of each year you should have some form of year-end procedure that will clear the values in your trial balance relating to your Profit and Loss account and this will move those values to your Balance sheet. This is often undertaken within your accountancy softwares year end procedure or your chartered accountant might make and most commonly this involves a combination of the two.
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