What is a trial balance and why do I need one?
A trial balance is the overview of all ledger accounts with their closing balance, in which debit and credit are equal. It is the starting point of every set of annual accounts.
Short answer
A trial balance is the overview of all ledger accounts with their closing balance, in which debit and credit are equal. It is the starting point of every set of annual accounts.
Basis: art. 2:362 DCC
What data does a trial balance contain?
The annual accounts are built from the trial balance: each account gets a suitable place in the balance sheet or the profit and loss account based on its content. The statutory view required and the reporting policies chosen determine the presentation; one standard model does not fit every case.
A usable export shows, per ledger account, the number, the description and the debit or credit balance on a chosen date. It therefore contains more detail than the published balance sheet. Take, for example, bank €12,000 debit, receivables €8,000 debit, payables €5,000 credit and equity €15,000 credit: both sides total €20,000. A balancing total proves that the entries reconcile arithmetically, but not yet that every account has been posted correctly in substance. Therefore check the selection period and the chosen bookkeeping.
How do you convert accounts into annual accounts line items?
What matters is that you use the trial balance after all closing and correction entries. A preliminary trial balance from halfway through the process leads to figures that must be re-imported later.
The bookkeeping may use several accounts for the same statutory line item. Receivables from trade debtors of €6,000 and €2,000 together become €8,000 on the appropriate balance sheet line, while a receivable from a director may call for separate assessment. A negative bank balance is generally a liability, not a negative asset. For each account, note why it is linked to a line item and compare that classification with last year. The trial balance supplies the amounts, but the notes and accounting policies only arise after a substantive assessment.
What checks do you do before preparing?
For the comparative figures you need the same layout for the preceding financial year (art. 2:363(5) DCC). You can also have that taken over from the previous annual accounts.
Make a reconciliation between closing balances, preliminary and final trial balance and the final annual accounts. Check whether depreciation, inventory corrections, taxes payable and appropriation of result were posted at the right moment. An export from 30 December may miss the last day of a calendar financial year. Also ask for a source for the comparative figures of the preceding year; the old pdf can help, but a ledger export makes differences easier to explain. Keep both exports and the mapping with the file. With a new export after a correction, check the totals again.
How do you check the export with a worked example?
Choose an account from each main group and follow it from ledger to annual accounts. Take, for example, trade receivables of €8,000 on the trial balance. Deduct an uncollectible invoice of €1,500 if the valuation rules require it and explain why €6,500 appears in the annual accounts. A difference is therefore not always an error, but without a correcting entry or explanation it cannot be followed. Do the same check for bank balance, loans, turnover and costs. Always note the reference date of the export and the date of the closing entry that changed the balance.
Watch the use of signs: one bookkeeping package shows liabilities as positive in a credit column, another with a minus sign in a single balance column. When importing from Excel or CSV, that convention must be read correctly. A reversed liability of €20,000 can make the balance sheet artificially larger or smaller. Therefore check the total debit and credit and compare a few known bank and creditor balances with the source. If an XAF audit file is used, the same substantive assessment of items remains necessary. The trial balance is a reliable start when source period, completeness and mapping demonstrably check out.
Sources
Frequently asked questions
Is a trial balance the same as a balance sheet?
No. The trial balance shows ledger accounts; the balance sheet groups them into annual accounts line items.
Does debit equal to credit prove all figures are right?
No. A wrongly posted account can still be in balance arithmetically.
Do I need last year's trial balance?
It helps greatly for the comparison; an adopted previous year's annual accounts can also be a source, provided you can explain differences.
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Preparing Dutch annual accounts?
Your first set of annual accounts is free, for every size class. Create an account and prepare the annual accounts of your Dutch company under Title 9 of Book 2 of the Dutch Civil Code.
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