The Trial Balance report provides a snapshot of your organization's ledger accounts, displaying the balances and movements for a specified period. This guide explains how to read the report and its importance in maintaining accurate financial records.
Report Structure
Columns:
Ledger Account: The account name or code (e.g., Cash, Accounts Receivable, Sales Revenue).
Starting Balance: The balance of the ledger account at the beginning of the period.
Credit Amount: The total credits applied to the ledger account during the period.
Debit Amount: The total debits applied to the ledger account during the period.
Ending Balance: The balance of the ledger account at the end of the period.
Final Total Row: Displays the sum of the Debit and Credit columns. A balanced trial balance will have equal totals for both columns.
Why a Trial Balance Is Helpful
A Trial Balance is a foundational financial report used to ensure that all debit and credit entries in your ledger accounts are balanced. It helps to:
Identify Errors: By confirming that total debits equal total credits, a Trial Balance helps detect data entry mistakes or miscalculations.
Prepare Financial Statements: It serves as the starting point for preparing more detailed financial reports, such as Income Statements and Balance Sheets.
Review Account Balances: Provides an overview of all ledger accounts, making it easier to review balances and track changes over time.
Key Points in a Trial Balance
Asset Accounts: Usually have debit balances.
Liability and Equity Accounts: Typically have credit balances.
Revenue Accounts: Generally have credit balances.
Expense Accounts: Usually have debit balances.
Totals: The total of the debit column must equal the total of the credit column to ensure the ledger is balanced.
Note: While the trial balance usually nets to zero (total debits equal total credits), there are cases where this might not happen. For example, if there are sources of transactions not pulled into Entendre, the trial balance may show an imbalance.
Edge Case: When Trial Balance May Not Net to Zero
Consider a scenario where a user off-ramps crypto from their ETH-USDC-SAFE-01 wallet for $100,000 USDC. Entendre records the withdrawal from the crypto wallet to their Circle account. Here is how the journal entries (JE) would appear:
JE-1: Withdrawal from ETH-USDC-SAFE-01:
Dr. Internal Transfers Clearing Account for $100,000
Cr. ETH-USDC-SAFE-01 Asset Account for $100,000
JE-2: Receipt into Circle Account:
Dr. Circle Asset Account for $100,000
Cr. Internal Transfers Clearing Account for $100,000
JE-3: Off-Ramp Clearing:
Dr. Off Ramp Clearing Account for $100,000
Cr. Circle Asset Account for $100,000
Since Entendre handles only the crypto transactions, the Off Ramp Clearing Account will have a balance of $100,000. Without a corresponding credit transaction from an external source to net it out, this creates an imbalance.