What is the purpose of a trial balance?

The primary purpose of a trial balance is to ensure that total debits equal total credits in the accounting records. This fundamental step in the accounting cycle helps to verify that the accounting equation is balanced, which means that the bookkeeping is accurate and complete. When all transactions are recorded in double-entry accounting, each transaction should result in equal debits and credits.

If the trial balance does not balance, it indicates that there may be errors in the journal entries or ledger postings, such as incorrect amounts being recorded or transactions being omitted. By confirming that total debits and credits match, accountants can identify and correct these mistakes before moving on to the preparation of financial statements.

While a trial balance does serve as a useful tool in the preparation of financial statements, its essential function is to confirm the accuracy of the ledgers being reconciled. Profit calculation and financial ratio analysis come later in the accounting process and are dependent on the correctness of the trial balance.