Trial Balance & Errors
What is a Trial Balance
- A trial balance is a list of balances from every general ledger (including cash book and petty cash book) distinguishing debit and credit balances on
- It is extracted at regular intervals
The rules to prepare the Trial Balance:
Total Debit Entries = Total Credit Entries
Debit
Assets
Expenses
Drawings
Credit
Income/ Revenue
Liabilities
Capital
Errors not affecting trial balance agreement
Note :Trail Balance will be inaccurate yet Debit and Credits will be Equal E.g. Error of Commission / Error of Principle / Error of Original entry / Error of Omission / Compensating errors / Complete reversal of entries
Errors of Omission
A transaction has been completely omitted from the accounts.
Errors of Commission
The correct amount is entered but in a wrong personal account
Errors of Principle
An item is entered in the wrong type of account due to misunderstanding of the nature of the item. Eg. Motor running expense entered as a debit in the Motor Vehicle account
Errors of Original Entry
- Wrong original figure is entered in the journals, and hence posted incorrectly to the accounts.
- Here, the correct accounts have been used, and the correct sides: what is wrong is that the amount has been entered incorrectly in both accounts
Compensating Errors
- Debit side errors are equal to credit side errors.
- Here 2 errors cancel out each other
Complete Reversal of Entries
The correct amounts are entered in the wrong sides of the two appropriate accounts.
Errors Affecting Trial Balance Agreement
Errors revealed by a trial balance because Debits and Credits will not equal
- Posting to the wrong side of an account.
- Errors in calculation and balancing
- Incorrect amounts entered on one entry
- Omission of one entry.
Suspense Account
When the trial balance does not agree, the amount of the difference is entered in a suspense account.
Correction of Errors
To correct the errors, make correcting entries in the ledger accounts first, and hence clear the suspense accounts. |
