What is a trial balance and why is it prepared?

• A. A trial balance lists ledger balances to check that total debits equal total credits and to assist in preparing financial statements.
• B. A trial balance shows cash flow projections.
• C. A trial balance records only revenue accounts.
• D. A trial balance is used to file tax returns.

Answer: (D)

A trial balance is a list of all the balances from the general ledger, put together at a specific date to check for arithmetic accuracy. Its main purpose is to ensure that total debits equal total credits across all accounts, which helps catch posting errors. It also serves as a useful starting point for preparing the financial statements—the income statement and the balance sheet—by showing the ending balances of each account.

Why the other ideas aren’t what a trial balance is for: cash flow projections are forward-looking and relate to the cash flow statement, not to listing current ledger balances. A trial balance includes all types of accounts (assets, liabilities, equity, income, and expenses), not just revenue accounts. Filing tax returns isn’t done from a trial balance itself; taxes rely on the financial statements and supporting records.