Immediately check the balances of all of your accounts with a trial balance. A trial balance lists all of your business accounts and their balances, including cash accounts, accounts receivable, pre-paid accounts, property, equipment, accounts payable, bank loans, and shareholder loans. The trial balance is key in reconciling your financial statements.
In this video…
In this video, you will learn about the trial balance, and why it is important when accounting for construction businesses. Sometimes a business owner may want to see what is going on with all of the financial accounts at once to get a financial snapshot of the business. But some accounts appear on the balance sheet, while others appear on the income statement. The trial balance gives you an overview of what is happening with all of the accounts.
A Key Reconciling Tool
As the owner of the company, you may not regularly read the trial balance like you would the income statement in the balance sheet, but it’s still important to understand what it is, and to be comfortable with it. When you have your bookkeeper hat on, you can use it as a key reconciling tool because it has all the account balances in one report.
All of Your Account Balances at Once
Run the trial balance to show account balances at the beginning of the year. This is helpful when you want to compare account balances from the beginning of the year to the current balance. Permanent accounts live on the balance sheet. Balances of the permanent accounts like a checking account are carried over to the next year when closing the fiscal year. Temporary accounts live on the income statement. Temporary accounts like the income and expenses are zeroed out at the fiscal close and start at zero at the beginning of the fiscal year. The trial balance shows the status of all of these accounts.
In the next video, we’ll learn how to read the balance sheet.
Next Video: Balance Sheet