Accounts Payable Trial Balance
At the end of an accounting period, several reports are run as part of the accounting process. One of these is the accounts payable trial balance report, which may also be referred to as a payables trial balance report.
This document lists the ending balance in each general ledger account, including subtotals for any partial and unpaid invoices that were transferred to the general ledger. The primary purpose of this report is to ensure that the total of all debits equals the total of all credits so there are no unbalanced journal entries in the accounting system that would prevent accurate financial statements from being generated.
The year-end trial balance is something auditors ask for when they start an audit so they can transfer the account balances on the report into their auditing software. It’s also possible auditors may ask for an electronic version because they can more easily copy it into their software.
Even when the debit and credit totals stated on the trial balance equal one another, it does not mean that the accounts are error-free. For instance, a debit could have been entered into the wrong account which means that even though the debit total is correct, one underlying account balance is too low while another is too high. If an accounts payable clerk record the $100 supplier invoice with a debit to the supplies expense and a $100 credit to the accounts payable liability account, everything balances out but there is still a mistake. The debit should have gone to the utility expense account but the trial balance will still show that the number of debits equals the total number of credits.
You can use the trial balance to manually compile financial statements but the predominant use of computerized accounting systems that generally create the statements automatically. Because of this, this report is really used to compile financial statements manually, essentially negating the need to use the trial balance report in your accounting operations to create the necessary financial statements.
When the trial balance is first printed, it is known as the unadjusted trial balance. The unadjusted trial balance is only used in double-entry bookkeeping where all entries must balance. This balance is used as the starting point to analyze account balances and making adjusting entries.
Then after the accounting team correct any errors and make the necessary adjustments to bring the financial statements into compliance with an accounting framework, the report is renamed the adjusted trial balance. The adjusted trial balance report is generally printed and stored in the year-end book and archived. It is an internal report that is not part of financial statements but is instead used to build the income statement and the balance sheet. Creating the statement of cash flows, however, requires additional information.
After the accounting period has been closed, the report is known as the post-closing trial balance. It lists all the balance sheet accounts that contain non-zero balances. It contains no revenue, expense, gain, loss, or summary account balances because these temporary accounts have already been closed and had their balances moved to the retained earnings account as part of the closing process.
Once all debits and credits in the report zero out, no additional transactions can be recorded in the prior period, and they must start being recorded for the next period.
If your organization has subsidiaries that report their results to a parent company, the parent company may request an ending trial balance from each of its subsidiaries. Then, they use that information to prepare consolidated results for the company as a whole.
The general ledger is the report internal accountants prefer because it shows the detailed transactions that comprise the ending balance and at the least point toward the relevant subledger that contains that information. This additional level of detail provides the activity in an account during an accounting period, which makes it easier to spot potential errors and conduct research.
“A trial balance report is something compiled from the accounting records. But because of adjusting entries could be made as a result of reviewing the report, it can be said that trial balance accounting encompasses the adjustment process that converts an unadjusted trial balance to an adjusted trial balance.”
Trial Balance Format
The initial trial balance report contains four columns:
- Account number
- Account name
- Ending debit balance
- Ending credit balance
Each line item contains only the ending balance in an account. All accounts having an ending balance are listed in the trial balance and the accounting software generally automatically blocks any account that has a zero balance from appearing in the report.
The adjusted version of a trial balance report may combine the debit and credit columns into a single combined column and add columns to show adjusting entries along with a revised ending balance, as shown in the example below.
Example of a Trial Balance
The following trial balance example combines the debit and credit totals into a second column so the summary balance for the total is zero. Adjusting entries are added in the next column to provide an adjusted trial balance in the far right column.
Demo Company, LLC
March 31, 20XX
|Fixed assets (net)||210,000||210,000|
|Cost of goods sold||290,000||290,000|
Reconciling Accounts Payable
To start, add the posted invoices for the current period, which is the total invoice amount from the Payables Posted Invoice Register. Then, subtract the posted payments for the current period, which is the total cash plus discounts from the Payables Posted Payments register.
That amount should equal the balance for the current period Payables Trial Balance report.
When building reports in your AP software, you can include the type of transaction – such as invoice, debit memo, credit memo, payment request, prepayment, etc. to help you with finding detail.
At the end of an accounting period, when all the accounts payable and general ledger periods are closed, you can expect the account payable aging report to reconcile with the AP trial balance. To do this, you run the AP aging report, then run the unaccounted transaction report, and then run the trial balance report. Subtract the amount in the unaccounted transaction report from the AP aging report and it should equal the same amount as the accounts payable trial balance report. If there are problems with general ledger reconciliation or elsewhere in the reconciliation report, there is an entry error somewhere that must be corrected before the current period can be closed.
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