What should a checklist for auditing the trial balance contain?

What is the checklist actually testing?

OpenStax's Principles of Accounting, in its section on preparing a trial balance, defines one as a list of all general ledger accounts that have nonzero balances. A checklist over that list can test four properties:

• Arithmetic agreement. Total debits equal total credits.
• Completeness. Every account that should carry a balance is listed, and nothing is listed that should not be.
• Agreement with the ledger and its support. Each balance equals the ledger balance and, where one exists, the reconciliation, subledger or schedule behind it.
• Classification and sign. Each account has the right type and a balance on the side that type normally carries.

The first property proves least. AccountingTools' article on trial balance errors says a trial balance fails to detect errors that do not affect the equality of debits and credits, including errors of omission, errors of principle, compensating errors and correct amounts posted to the wrong accounts, and that finding them takes reconciliations, analytical procedures and detailed review. Balanced totals open the checklist; they do not close it.

Items that open individual transactions belong to a general ledger review, and items that read finished statements to a statement review. This is an internal check, not an audit or review engagement, and signing it gives no opinion on any statement.

Which form of trial balance are you holding?

State the form at the head of the checklist, because an item that is valid on one form produces a false finding on another. In OpenStax's Principles of Accounting, the unadjusted trial balance shows accounts before they have been adjusted (section 3.6), the adjusted one includes adjusting entries (section 4.4), and only permanent account balances should appear on the post-closing one (section 5.2).

OpenStax's sections on closing entries (5.1) and the post-closing trial balance (5.2) treat any income statement, dividends or income summary account still carrying a balance after closing as an error in the closing process, to be fixed before the new period starts. Some software closes the year automatically: Intuit's help page Lock your books in QuickBooks Online says that when a new fiscal year starts, the system moves last year's net income to the retained earnings account. There, the post-closing test is the retained earnings check below. The same page notes that the retained earnings account is not the retained earnings line on the balance sheet, so run the check on the account as the trial balance lists it.

Which structural items need no other document?

These items test the trial balance alone and belong on every checklist:

• Totals agree. Total debits equal total credits.
• Every active account is present. Compare the listed accounts with the chart of accounts. An absent account is acceptable only if its balance really is zero; Intuit's help on showing active rows in QuickBooks Online says its Non-zero option, where the report offers it, hides rows with a total of zero.
• Nothing is orphaned. An inactive account with a balance, an account missing from the chart, or a suspense or other holding account with a balance is an exception. AccountingTools' suspense account definition says all suspense items should be researched and eliminated by the end of the fiscal year, or the statements will contain unidentified transactions.
• Each balance sits on its normal side. AccountingTools' article on debit and credit rules gives expenses, assets and dividends as debit-balance types, and liabilities, revenues and equity as credit-balance types. AccountingTools' normal balance definition adds that contra accounts run opposite to their paired account, that cash can show a credit balance when overdrawn, and that abnormal balances should be investigated before financial statements are prepared. Record an overdraft as an explained abnormal balance; presenting it on the statements belongs to statement preparation.
• Each account has the right type. A loan set up as income, or a customer deposit set up as an asset, puts a correct balance in the wrong place.

On the cash basis, check receivables and payables. Intuit's help on A/R or A/P balances on a cash basis balance sheet in QuickBooks Online names, among the usual causes, an accounts payable or accounts receivable transaction that has affected the balance sheet account. Explain any such balance. The same page says a balance from sales tax, a security deposit, a retainer or an asset purchase bill can be left where it is; an unapplied payment, or a balance you cannot trace to such a transaction, is an exception.

Which balances must tie out, and to what?

A wrong figure entered on both sides passes every item above, so the checklist traces balances to their support. AccountingTools' guide to reconciling an account says reconciliation is usually done for all asset, liability and equity accounts, since their balances may continue for many years, and AccountingTools' subsidiary account definition says subsidiary balances are typically reconciled to the general ledger account they detail.

For each, record the document's name, date and balance, the trial balance figure and the difference; the item passes when the support is dated at the trial balance date and agrees exactly or differs only by timing items already listed on the reconciliation. Any other difference, listed or not, is an exception. Reviewing the reconciliation itself is separate work; here it must exist, be current and agree. AccountingTools' reconciliation guide says revenue and expense accounts are reconciled less often, since their balances are closed each fiscal year. Tie those with a schedule or report behind them, such as depreciation expense to the depreciation schedule and wages to the payroll report, and compare the rest with the prior period, explaining movements above a threshold you set in writing. Equity is checked by the roll-forward below.

Did every recorded adjustment reach this trial balance?

On the adjusted form, compare the adjustment log with the balances account by account: the unadjusted balance plus logged adjustments, each signed as an increase or decrease of that account's normal balance, should equal the adjusted balance. Totals cannot do this, because a missing entry drops out of both columns at once. Intuit's help on adjusting journal entries in QuickBooks Online Accountant describes an Adjusted Trial Balance report listing general ledger balances before and after adjusting journal entries, with their total. The page also tells non-accountants to enter regular journal entries without saying how the report treats them, so take the Unadjusted column from a trial balance exported before the adjustments were posted, and keep that export with the checklist.

A June log holds depreciation of 1,250.00 and accrued wages of 3,400.00:

The trial balance still balances. The wages entry had been dated July 1, outside the period, so the fix is to correct its date in the ledger and rerun, never to edit the trial balance. Then confirm in the ledger that the accrual's July reversal or clearing entry exists, so July's payroll posting does not count the 3,400.00 twice. Which adjustments a business needs is a separate question.

Is it the right period, basis and starting point?

Check three things before trusting any other result:

• Period. The as-of date is the period end you intend and, in QuickBooks Online, the fiscal year start is set correctly, since Intuit's help on locking the books says the system moves last year's net income to retained earnings when a new fiscal year starts.
• Basis. The report's basis is the one the next user needs. Intuit's help on choosing cash or accrual accounting methods in QuickBooks Online says the method can be changed on an individual report: a cash report counts income or expenses only once a payment arrives or a bill is paid, and an accrual report counts them whether or not the invoice or bill was paid.
• Roll-forward. OpenStax's section on closing entries says permanent accounts keep their balances into the next period, so each balance sheet account opens at the prior period's signed-off closing balance. Rerun the prior period's trial balance with its recorded settings and compare it line by line with the signed-off copy; a difference means something in that period changed after sign-off. A lock date does not prevent this, since Intuit's help on locking the books says an attempt to change a transaction dated on or before the lock date triggers the warning or password prompt you set.

Compare both periods on the same basis. On the accrual basis, an invoice or bill open at the prior close sits in receivables or payables and rolls forward with them. On the cash basis, one coded to income or expense is not a balance: it reaches income or expense when paid. In QuickBooks Online, Intuit's help on cash-basis A/R and A/P balances says one that includes sales tax, a security deposit, a retainer or an asset purchase shows in A/R or A/P until paid; it rolls forward like any other balance.

At a new fiscal year on the accrual basis, if the prior year ended with retained earnings of 42,300.00 before closing and net income of 18,700.00, the new year opens with retained earnings of 61,000.00 and every revenue and expense account at zero. If your closing also moves dividends into retained earnings, as OpenStax's closing-entries section describes, or owner draws or distributions into retained earnings or owner's equity, deduct them; check contributions and other equity accounts through the line-by-line roll-forward. On the cash basis, the same check uses cash-basis retained earnings and net income.

What changes when software produced the trial balance?

Software builds the trial balance from its ledger, but its settings decide what it shows, and no arithmetic item reveals a wrong setting. With every checked report, record the system, company file and report name; the as-of date or date range; the basis; whether zero or inactive rows were hidden; any class, location, customer or other filter and any comparison columns; and when and by whom it was run. In QuickBooks Online, also record whether the report ran in the classic view or the enhanced experience; Intuit's help on showing active rows says some reports look different in each. Keep an export of exactly what you checked, because a rerun with other settings will not show what was signed off. In another system, find the same settings among its report options.

A trial balance assembled by hand has no settings but more to check: trace each line to the ledger's ending balance, confirm each total's formula covers every row, and record the file name and version.

What happens when an item fails?

Record the exception first: the item, account, amount, what the evidence showed and who found it. Then route it:

Never type over a trial balance figure or post a balancing amount to make totals agree: a forced total turns a difference you could trace into one nobody can explain, and removes the signal that something upstream is wrong. A reclassifying entry used to hide a transaction error leaves the books wrong while the checklist reads clean, so reserve it for the first row.

Who can clear which items?

A checklist run by the person who prepared the balances is a self-review, and its record should say so. The preparer can credibly clear the arithmetic, completeness, sign-and-type and settings items; where staffing allows, a second person re-performs the tie-outs, the adjustment check, the prior-period rerun and the reasonableness explanations, and clears any exception in balances the preparer recorded or reconciled. AccountingTools' article on trial balance errors advises authorizing corrections with supporting documentation and having a senior accountant review them first, since they may also be in error: whoever makes a correction does not also clear it. In a one-person business, redo the tie-outs from source documents on a later day, mark the checklist and any correction self-reviewed, and leave any exception you cannot explain open for your outside accountant.

What does the completed checklist record?

The PCAOB's auditing standard on audit documentation, AS 1215, requires, among other things, records of who performed the work and when it was completed, who reviewed it and when, and the significant findings or issues and the actions taken to address them. Borrow that bar, not the engagement: someone who was not there should be able to see what was checked, against which report and settings, by whom, and what happened to every exception.

The example below is for an adjusted trial balance, period ended June 30, 20X6, accrual basis, all rows shown, no filters, exported July 8 by the preparer and checked July 9 by a second person.

Beside it, keep an exception log giving each exception's description and amount, accounts affected, route, owner and status, including any left open. The checker, and the reviewer where there is one, sign and date it.

What must be closed before it is handed on?

When the trial balance feeds statement preparation or goes to a return preparer, close first every exception that would change a figure the recipient relies on: a tie-out difference beyond timing items, a suspense or holding balance, an unexplained abnormal balance, a missing adjustment, or a wrong period, basis or setting. If one cannot be closed in time and the recipient agrees to proceed, record its amount, the accounts affected, why it is open and who accepted carrying it, and tell the recipient in writing. A cleared checklist lets you draw statements from the adjusted trial balance or hand it on; it says nothing about the statements themselves.

How do you scale it to your chart of accounts?

Some items apply to any trial balance, however small: the header and settings, totals, completeness, sign and type, bank and card tie-outs, the adjustment check on an adjusted form, the roll-forward and the exception log. What grows with the business is the number of rows: one tie-out per supported balance and subledger, a set per class, location or entity if you report that way, and more lines under the prior-period comparison. A large chart can group tie-outs by balance sheet section, but each supported balance keeps its own evidence line.