The closing process is designed to finalize the financial information for that period of time. It involves correction of errors, posting omissions and confirming balances
of accounts. Once done, the bookkeeper and management can prepare reports with a high level of confidence with their accuracy.
The trail balance is an accountant’s report used to confirm that all debits and credits are equal in the accounting input process. It is also used to organized information and via a working trial balance, adjust existing information to comply with other accounting formats: cash basis, tax basis, GAAP and so on.
The trial balance is a special report used by accountants and bookkeepers. It is NOT a management nor a financial report. Its primary purpose is verification of account balances and compliance to the dual entry system (debits equal credits). It is generally utilized as the first step in the closing process for interim and annual reporting. Experienced bookkeepers use the trial balance to spot egregious errors and obvious discrepancies.
One of the many tasks for bookkeeper in their daily operations is reconciling accounts including bank accounts, accounts receivable, accounts payable and many others. Invariably, the balances are off and need adjusting. To reset or balance the account the bookkeeper must use an adjusting journal entry.
The accounting profession uses various tools to generate accurate accounting information at the close of accounting cycles (monthly, quarterly and annually). The primary document is the working trial balance. It is very similar to the traditional trial balance except there are additional columns used to identify various adjustments and the corresponding source documents (work papers).
The bookkeeping cycle is like a huge giant clock with several dozen gears from a multiple cog gear rotating the most frequently turning cog cascading into the one large gear that once turned changes the timer one year forward. The bookkeeper’s job is to make all the gears click and keep the system lubricated. At the end of the year, hopefully the final gear moves one click on time and the process starts all over.
Up to this point in this series about bookkeeping I’ve only mentioned accounts (ledgers) by name. To speed up the process of entering information accountants converted names to numbers. This made it easier to enter information in the original journals. Instead of long hand written words for the particular ledger, you simply enter a number.
The primary report used by accountants is the trial balance. It is the job of the bookkeeper to make sure that it is in balance and that there are no abnormal values within the respective types of accounts. This lesson sums up the prior 15 lessons and illustrates the trial balance with a condensed version and an expanded version.
Debits and credits are two words that are the most recognized terms synonymous to bookkeeping and accounting. I have read over 30 different articles as to how other authors define debits and credits with bookkeeping. Several authors try to get the reader to visualize the terms as the left side and the right side of the ‘T’-Account (I also describe this in Lesson 2).