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4 min 40 sec
0:00
Do the books add up?
0:20
How a trial balance works
0:45
Northlight's trial balance
1:24
What it catches
2:02
What it can't see
2:35
From balance to reports
3:13
The trial balance in Beeswax
3:46
Recap and quiz
Accounting 101
·
Foundations
·
Episode 5
The Trial Balance
(The moment of truth. Bring snacks.)
End of Maya's first proper month. Build Northlight's trial balance, see what it catches and what it can't, and how it splits into the two main reports.
trial balance
errors
month end
Transcript
0:00
End of March. Maya's done her first proper month of bookkeeping. She's feeling good about it. Suspiciously good.
0:08
Before anyone trusts these numbers, there's one quick test. It's called the trial balance, and it's been catching mistakes for about five hundred years.
0:20
Here's the idea. Take every account in the ledger, and write down its balance. Debit balances in one column. Credit balances in the other.
0:30
Then add up both columns.
0:32
Because every single entry had equal debits and credits, the two totals must match. If they don't, something's gone wrong. It's the accounting equation, checking its own homework.
0:45
Let's do Northlight's. Debit balances first.
0:49
Bank, fifteen and a half thousand. Computer equipment, three thousand. Rent, eight hundred. Software, five hundred and fifty. Contractors, twelve hundred.
1:01
Now the credits. The credit card, fifty. The loan, five thousand. Maya's capital, ten thousand. And services income, six thousand.
1:12
Debits: twenty-one thousand and fifty. Credits: twenty-one thousand and fifty.
1:18
They match. Maya does a small dance. We look away, politely.
1:24
So what does it catch? Anything that knocks the two sides out of line. An amount typed differently on each side. A line posted as a debit instead of a credit. A sum that was simply added up wrong.
1:38
And here's an old accountant's trick. If the difference divides exactly by nine, look for two digits swapped. Twelve hundred typed as twenty-one hundred is out by nine hundred. And nine hundred divides by nine. Every time.
1:54
Another one. If an amount went on the wrong side, the difference is twice that amount. So halve it, and go looking.
2:02
But, and it's a big but, it's called a trial balance for a reason. It is not a proof.
2:10
It can't see an entry that was never made. Both sides are missing, so everything still matches.
2:16
It can't see the right amount in the wrong drawer. Rent posted as software still balances beautifully. It's just wrong.
2:24
And if both sides are wrong by the same amount, it'll happily agree with both of them. Remember the polite smoke alarm? It only goes off for some kinds of smoke.
2:35
Once it balances, though, the trial balance does something rather lovely. It splits straight into the two reports you met in episode two.
2:43
Income and expenses make the profit and loss. Six thousand in. Two thousand, five hundred and fifty out. Three thousand, four hundred and fifty profit.
2:55
Assets, liabilities and equity make the balance sheet. And that profit joins Maya's equity. Eighteen and a half thousand on one side. Five thousand and fifty, plus thirteen thousand, four hundred and fifty, on the other. Balanced. Obviously.
3:13
In Beeswax, the trial balance is a report you can open any time. Accounts are grouped by type, each with its debit or credit balance, and the totals along the bottom.
3:24
Click any account, and it opens up to show every transaction behind the balance. So when something looks odd, you can find out why in a couple of clicks.
3:35
And if the totals ever disagree, Beeswax adds a net line, showing you exactly how far out you are. Hopefully you'll never see it. But it's nice to know it's there.
3:46
So. A trial balance lists every account's balance. Debits on one side, credits on the other. If the totals don't match, something's wrong. If they do, something might still be wrong. But it's a very good start.
4:02
Quick one. Maya's debits come to twenty-one thousand, one hundred. Her credits, twenty-one thousand. Where should she look first?
4:11
Have a think.
4:15
The difference is a hundred. Halve it. Fifty. Look for a fifty on the wrong side. And there it is. The credit card, posted as a debit.
4:26
You found it faster than most auditors. And they'd have charged for it.
4:31
That's the foundations done. Next time, we start running the business properly. Why a quote isn't money yet, however much it feels like it.