Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Trial Balance and Errors

  • As already stated there are two main reasons for preparing a Trial Balance:
    1. It is used as a starting point for preparing financial statements
    2. To check for errors in the accounting system
  • Given that the second purpose of a Trial Balance is to check for errors in accounting records
  • It would be natural to assume that when a Trial Balance balances it means that there are no errors in the accounting records
  • The truth though is that there are some errors that a Trial Balance will not reveal
  • A Trial Balance will reveal the following errors:
    1. Addition and arithmetic errors within the records
    2. A single entry in the books instead of double entry
    3. Using different figures for the credit and debit entries
  • These errors are only revealed if there are no compensating errors for example single debit entry of $500 is made in the books while at the same time the Creditors Ledger is overstated by $500
  • These two errors would cancel out each other and might remain hidden
  • If you want to know more about errors that are not revealed by a Trial Balance click here

To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.

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