Following on from yesterday’s post we continue to look at why it is important to review your trial balance.

As the trial balance lists all the accounts it can help you identify accounts you did not realised existed. 

As noted in an earlier post, often the main financial reports consolidate totals of different accounts but often you may not be aware of all those accounts.

For example, if you have an account on your balance sheet called Cash at Bank, do you know what actual bank accounts you have that make up the total?  It is not unusual to find that organisations that have had a turnover of staff have set up multiple bank accounts that make up this figure.  When you investigate the balance you may find you have two or three additional bank accounts that may not be used but still contain balances.

A quick scan of the trial balance can also help you to identify other accounts that you are not sure why they exist.

When this occurs you should investigate to find out details.  Often what can happen with inexperienced bookkeepers is that they set up “balancing or clearing accounts” that are used to post transactions when they are  not sure where they should go, to hide an error or to simply help to balance the accounts.  If you have accounts like this that don’t make sense then you need to investigate the reasons why they exist and what makes up the balance.

Ideally, the trial balance should be reviewed before you prepare the profit and loss statement, balance sheet, cash flow statement or any other report from the accounting system.  As previously noted, while it does not guarantee that there are no errors is does at least provide a level of confidence compared to a trial balance that does not balance.