Last reviewed: July 2026.
A trial balance is a list of ledger balances arranged into debit and credit columns. It is an important checkpoint between recording transactions and preparing financial statements. However, a trial balance is not a finished income statement, and equal totals do not prove that every transaction is correct.
This worked example uses the figures from the original lesson. The first task is not to calculate profit immediately; it is to confirm that the trial balance actually balances.
Original trial balance example
| Account | Debit (CU) | Credit (CU) |
|---|---|---|
| Cash | 430 | — |
| Bank | 192 | — |
| Capital as originally shown | — | 500 |
| Rent | 60 | — |
| Carriage inward (assumed) | 46 | — |
| Trade payables | — | 760 |
| Trade receivables | 510 | — |
| Purchases | 918 | — |
| Sales | — | 696 |
| Total | 2,156 | 1,956 |
The debit total is 2,156 currency units (CU), while the credit total is 1,956 CU. The difference is therefore 200 CU. Financial statements should not be prepared as though the figures were complete because the unexplained difference could affect profit, assets, liabilities or capital.
A trial balance that does not balance is a signal to investigate. Do not force the statement of financial position to balance by inventing an amount. A suspense account may be used temporarily in practice, but the underlying error must still be found and corrected.
Why a trial balance may not agree
Common causes include entering only one side of a transaction, posting different amounts to the debit and credit accounts, placing a balance in the wrong column, omitting a ledger balance, or making an arithmetic error. A difference that is divisible by two may indicate that an amount was placed on the wrong side. A difference divisible by nine may suggest a transposition, such as entering 540 instead of 450.
Begin by re-adding both columns, comparing the trial balance with the ledger, checking recent journals, and reviewing any large or unusual entries. The process from transaction records to a trial balance and then to financial statements is also described in ACCA’s financial-statement preparation guidance. ACCA’s Financial Accounting syllabus likewise treats trial balance preparation and basic financial statements as connected skills.
Correcting the example for teaching purposes
To complete the worked example, assume the investigation finds that the capital balance should have been 700 CU, not 500 CU. This is an explicit teaching assumption, not a conclusion that can be drawn from the trial balance alone. The corrected credit total becomes 2,156 CU, matching the debit total.
Also assume that “carriage” means carriage inward, so it forms part of the cost of bringing purchases to the business. If the amount were carriage outward, it would normally be treated as a selling or distribution expense instead.
Prepare the income statement
| Income statement | CU |
|---|---|
| Sales | 696 |
| Less: purchases | (918) |
| Less: carriage inward | (46) |
| Gross loss | (268) |
| Less: rent expense | (60) |
| Loss for the period | (328) |
The business has a loss because purchases and carriage inward exceed sales before rent is considered. In a more complete question, opening inventory, closing inventory, returns, discounts, depreciation and accrual adjustments may also be required.
Prepare the statement of financial position
| Statement of financial position | CU |
|---|---|
| Cash | 430 |
| Bank | 192 |
| Trade receivables | 510 |
| Total assets | 1,132 |
| Trade payables | 760 |
| Closing capital: 700 − loss 328 | 372 |
| Total equity and liabilities | 1,132 |
The corrected statement balances at 1,132 CU. The loss reduces the owner’s capital from 700 CU to 372 CU. This shows the connection between the income statement and the statement of financial position: profit increases equity, while a loss reduces it.
What the trial balance does and does not prove
- It confirms arithmetic equality: total debits equal total credits after all listed balances are included.
- It supports statement preparation: revenue and expense balances feed the income statement, while asset, liability and equity balances feed the statement of financial position.
- It does not find every error: complete omissions, compensating errors, errors of principle and equal debit-and-credit mistakes can remain hidden.
- It is not a substitute for adjustments: year-end accruals, prepayments, inventory, depreciation and impairment may still be needed.
Modern accounting-system context
Computerised systems can produce a trial balance at any time, but the accounting logic remains based on double entry. An integrated system may post a sales invoice simultaneously to revenue, tax and trade receivables. The speed of the report does not remove the need to check classifications, cut-off, authorisation and unusual balances.
For the broader recording cycle, review source documents and books of prime entry, the guide to financial accounting and its purpose, and the explanation of the statement of financial position. The related article on using accounting software explains how modern systems produce ledgers and reports.
Simple exam and practice checklist
- Add both trial-balance columns and investigate any difference.
- Classify each balance as income, expense, asset, liability or equity.
- Apply all adjustment notes before calculating profit.
- Transfer the period’s profit or loss to equity.
- Confirm that total assets equal total equity and liabilities.
- Review whether the final presentation is consistent with the applicable reporting framework.
Related Accounting Support guides
Key takeaway
The correct sequence is record, balance, investigate, adjust and then prepare. In this example, identifying the 200 CU imbalance is more important than rushing to a profit figure. Once the capital error is explicitly corrected, the income statement reports a 328 CU loss and the statement of financial position balances at 1,132 CU.
Further reading: ACCA Financial Accounting overview.