Trial Balance

Expanded Explanation: The trial balance is used to ensure that debits equal credits after the recording of journal entries. It’s a preliminary step to preparing financial statements and helps in identifying any errors in the bookkeeping process.

Potential Issues: An incorrect trial balance indicates errors in the bookkeeping process, which can lead to inaccurate financial statements and potential legal and compliance issues.

Example: Each month, your pet grooming business compiles a trial balance to ensure that total debits equal total credits in your bookkeeping.