Three Trial Balances

• Accountants prepare three distinct trial balances during the final stages of each accounting cycle: the first trial balance, the adjusted trial balance and the closing trial balance. Each trial balance performs an accuracy check related to the previous steps in the accounting cycle, and each trial balance must be successful before accountants can move to the next step in the process.
  
  

Preparing a Trial Balance

• The first trial balance is the first step performed at the end of each accounting period. To prepare the first trial balance, add up the values of all asset, liability and equity accounts to check the accuracy of journal entries and the general ledger. Examples of asset accounts include cash, accounts receivable and equipment. Examples of liability accounts include accounts payable and bonds payable. Examples of equity accounts include owners' capital for sole proprietorships and common stock for corporations.
  
  

Preparing an Adjusted Trial Balance

• Adjusting entries are made following the first trial balance to adjust ledger balances for accruals and other information not related to transactions. Accountants then prepare an adjusted trial balance to ensure the adjusting entries did not put the accounting equation out of balance. As with the first trial balance, compare total assets to the combined total of owners' equity and liabilities. Focus on the adjusting entries that may have reduced asset and equity balances in this step.
  
  

Preparing a Closing Trial Balance

• After preparing financial statements and making closing entries to remove the balances of temporary accounts, accountants prepare a closing trial balance to ensure the closing entries kept the equation in balance. Make sure all temporary equity accounts have been closed properly by increasing or decreasing their corresponding asset accounts, and once again add up the balance of assets, liabilities and equity.
  
  

Trial Balance Effects

• Trial balances perform a vital function in accounting, and they have wide-reaching effects on processes in the accounting cycle. The need to prepare trial balances influences the way in which account information is presented -- for example, as accountants need quick access to all account balances at any given time in the process. The results of trial balances also determine whether accountants can move on to the next step in the accounting process or whether they must back-track and search for errors and missing adjustments. In this way, a trial balance acts as a kind of referee, forcing accountants to carefully follow the rules of double-entry accounting.