Principles of Accounting: 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 Principles of Accounts Notes.