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By the end of these notes, you should be able to:
A trial balance is a list of all the balances from every account in a business's ledger (its record books), shown at a specific date.
To understand this, let's quickly recall how double-entry bookkeeping works:
The trial balance takes advantage of this rule. At a chosen date (for example, the last day of a financial year), a business lists every account with its balance and places it in either the debit column or the credit column. If the two columns add up to the same total, it is a sign that the arithmetic in the records is likely correct.
This is one of the most important things to memorise. Here is the rule:
| Account Type | Column in Trial Balance |
|---|---|
| Assets (things owned — e.g. machinery, cash, trade receivables) | Debit |
| Expenses (costs paid — e.g. rent, wages, irrecoverable debts) | Debit |
| Drawings (owner taking money/goods out) | Debit |
| Purchases (buying goods to sell) | Debit |
| Sales Returns (goods returned by customers) | Debit |
| Liabilities (amounts owed — e.g. loans, trade payables) | Credit |
| Income / Revenue (e.g. sales, interest income) | Credit |
| Capital (money invested by the owner) | Credit |
| Purchase Returns (goods returned to suppliers) | Credit |
| Provision for Depreciation (reduction in value of assets over time) | Credit |
| Provision for Doubtful Debts (allowance for customers who may not pay) | Credit |
| Irrecoverable Debts Recovered (money received from previously written-off debts) | Credit |
💡 Quick memory trick: Think of the accounting equation — Assets = Liabilities + Capital. Assets sit on the debit side; liabilities and capital sit on the credit side. Expenses and drawings increase with debits just like assets do. Income and capital increase with credits just like liabilities do.
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