The Working Trial Balance

A working trial balance is like a supercharged version of the regular report. It starts with the three-and-a-half standard columns that you find on your standard trial balance: account number (the half), account name, debit balance, credit balance. Then it adds on a couple of columns for mapping out the adjusting entries (more about those in the next section). Finally, it ends with a set of four columns — two sets of debit and credit columns, one for income statement accounts and one for balance sheet accounts. From this final group of columns, you'll be able to directly prepare your financial statements.

Unlike that final set of reports, though, the working trial balance is used as a work in progress. Since it's for your eyes (and maybe your accountant's eyes) only, it often ends up looking pretty messy. Whether the whole thing is done manually or you start with a printout from your accounting software, make your notes in pencil, and don't be afraid to cross out when you need to.

This is the place where your raw general ledger numbers will be polished to perfection, but the job it takes to transform them can get messy. Some numbers will need to be adjusted as a matter of course, such as recording periodic depreciation. Some entries will account for things that haven't actually happened yet but belong in this period anyway, such as accounting for half a week of salary expense when the period ends on a Wednesday and paychecks don't come out until Friday. Others will be used to correct mistakes that you've found in the ledger accounts, such as mispostings.

At the bottom of the page (or on an attached page if you run out of room), write a note for each adjustment you make, numbered in the order of the adjustments. For instance, for the first entry you include, write the number 1 next to all the numbers that go into that entry. Your first note will apply to that first adjustment. That way, when you go back and look at things later, you'll remember which numbers go together and why you made the adjustment. Once you feel sure all the numbers are in good shape, you can create financial statements with confidence.

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