The objective of preparing trial balance is to a counter check process to test the accuracy of posting. If the trial balance agrees it proves that the books are arithmetically accurate, and the two aspects of the transactions (Debit and Credit) have been recorded in the books of original entry as well as in the ledger. In this article, we will discuss errors in the trial balance and steps to locate errors. Show We know when the sum total of two columns of Trial Balance tallies, then it means that the Trial Balance is in agreement with books of accounts. But it also means that the accounting entries have been arithmetically correct and has been correctly posted in the ledger. But if the Trial Balance does not tally, then there could be errors in transaction entry. Such errors are called ‘Errors affecting trial balance’. These can be:
There are certain types of errors that will not affect tallying of the Trial Balance. i.e. it will tally but still there will be errors. These are as follows:
For the type of errors mentioned above, the identification process is very time-consuming. Only strict vigil and ongoing audit of entries could minimize such errors. Of course, the computerized accounting packages such as Tally.ERP 9 systems do provide built mechanisms to avoid occurrence of these mistakes. After preparation of Trial Balance, if the difference not major, it is temporarily transferred to “Suspense A/c’ until the errors are located and corrected. There are also errors which cannot be detected by a Trial Balance:
If the Trial Balance does not tally, the following procedure should carefully be followed:
Read More on Trial Balance What is Trial Balance, How to Prepare Trial Balance, Methods to Prepare Trial Balance, Rules & Examples of Trial Balance
May 19, 2022 May 19, 2022/
The trial balance is a summary-level of listing of the debit or credit total in each account. You normally use the initial, or unadjusted, trial balance for two reasons:
This unadjusted trial balance may contain a number of errors, only a few of which are easy to spot in the trial balance report format. Here are the more common errors, with suggestions on how to find them: Entries Made TwiceIf an entry is made twice, the trial balance will still be in balance, so that is not a good document for finding it. Instead, for an ongoing transaction, you may have to wait for the issue to resolve itself. For example, a duplicate invoice to a customer will be rejected by the customer, while a duplicate invoice from a supplier will (hopefully) be spotted during the invoice approval process.
Impossible to find on the trial balance, since it is not there (!). Your best bet is to maintain a checklist of standard entries, and verify that all of them have been made. Entries to the Wrong AccountThis may be apparent with a quick glance at the trial balance, since an account that previously had no balance at all now has one. Otherwise, the best form of correction is preventive - use standard journal entry templates for all recurring entries. Reversed EntriesAn entry for a debit may be mistakenly recorded as a credit, and vice versa. This issue may be visible on the trial balance, especially if the entry is large enough to change the sign of an ending balance to the reverse of its usual sign. Transposed NumbersThe digits in a number may have been switched. This is easy to find, since the underlying entry is unbalanced, and so should not have been accepted by the accounting software. If a manual system is being used, journal entry totals must be compared to the totals in the trial balance. This issue relates to the following one. Unbalanced EntriesThis is listed last, since it is impossible in a computerized environment, where entries must be balanced or the system will not accept them. If you are using a manual system, then the issue will be apparent in the column totals of the trial balance. However, locating the exact entry is vastly more difficult, and will call for a detailed review of every entry, or at least of the totals in every subsidiary ledger that rolls into the general ledger. Error Correction Best PracticesWhenever you correct an error, be sure to use a clearly labeled journal entry with supporting documentation, so that someone else can trace through your work at a later date. May 19, 2022/ |