Trial Balance
Trial Balance
A trial balance is a list of accounts together their debits
and credits balances extracted from e ledger and cash
book at a given date.
A chart of account is useful in preparing the trial balance
to ensure that no account has been omitted from the list.
All debit balances of accounts are listed in a Debit
column and all credit balances are listed in a Credit
column
Trial Balance
All of the balances in the Debit Column are added, and all
the balances in the Credit Column are added. Then the
two total are compared.
If the totals are the same, the trial balance is in balance.
But, if the total are not equal, an error was made either in
journalizing, posting, balancing of accounts, or preparing
the trail balance
Purpose of the Trial Balance
The primary purpose of preparing the trail balance is to
prove the mathematical equality of debits and credits.
According to the double entry rule of accounting, if a debit
and credit entries have been made for each transaction,
then the total of the debits should be equal to the total of
the credits.
Limitations of a Trial Balance
Although the trail balance is used to prove the accuracy of
the double entry system of recording, it has its limitations
A trial balance that balances does not necessarily prove
that all the transactions have been recorded or that the
accounting process is error free, because a number of
mistakes might have occurred and still the trial balance
totals are in agreement.
Errors not Revealed by the Trail Balance
1 Error of Omission – a transaction is completely omitted
from the books of accounts
2 Error of commission – an entry may be posted to the
correct side of the ledger but in the wrong account.
E.g. a debit entry to B. John instead of A. John
3 Error of principle – an entry is made in the wrong class
of account. This occurs where an expense is treated as
an asset
Errors not Revealed by the Trail Balance
4. Complete Reversal of Entries – this is an where which
occurs when an account which was supposed to be
debited is credited and vice versa.
5. Compensating error – Error on one side of the ledger is
compensated with by error(s) of the same amount on
the other side of the ledger
Errors not Revealed by the Trail Balance
6.
Error of Original Entry - This is where the double
entry is correctly observed using an incorrect
figure.
Errors Revealed by The Trial Balance
Errors may be revealed by the trail balance when it fails
to balance, by either the total of the DR column being
greater than the total of the CR column or vice versa.
The process of locating the errors may take sometime
and therefore the difference may be temporarily be
placed into a suspense account. The main purpose of
this account is to hold in suspension the errors (s) until
discovered
Errors Revealed by The Trial Balance
The suspense account serves as the balancing item in the trail
balance.
After the preparation of the trail balance, final accounts may
be prepared, if the amount in the suspense account is
immaterial then the business can proceed with the
preparation of final accounts, but if the amount is of material
then errors leading to the trial balance difference must be
discovered and corrected first.
Errors Revealed by The Trial Balance
1.
2.
3.
4.
Errors in calculation – any miscalculation of the trial
balance or when balancing the accounts
Error of Omission of one entry – Omission of either
debit or credit entry of a transaction
Posting to the wrong side of an account – entry in
the wrong side of one account
Error of amount – if the amount debited differs with
the amount credited for an entry from the same
transaction
Trial Balance
The end