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Trial Balance

Trial Balance is a statement prepared with the debit and credit balances of ledger accounts to verify the arithmetical accuracy of the book.


The Trial Balance checks the equality of debits and credits in the ledger by listing each account along with its ending balance.

Accounts to be placed on debit side

Accounts to be placed on credit side

Assets
Expenses
Drawings

Liabilities
Capital
Revenue

Errors revealed by Trial Balance

Errors in calculation

Any calculation mistake, especially totaling mistake or balancing mistake will be revealed by Trial Balance as both the side will not match.

Errors of omission of one entry

If by mistake only one entry is made for a transaction, Trial Balance will not balance.

Posting to the wrong side of an account

In case any entry is made on the wrong side of the account, it will be revealed by the Trial Balance. For example Credit sale of $100 was debited to Sales account.

Posting of wrong amount

When two different amounts are entered for the same entry, both the sides of the Trial balance will not match. For example, Credit sales of $123 to James. James was debited with $123 but Sales was wrongly credited as $132.

 

Limitation of Trial Balance

Though Trial Balance is prepared to check the arithmetical accuracy of double entries, there are still some mistakes which cannot be identified by Trial Balance. These are:

Errors of omission

These are errors where the transactions are totally omitted. They are neither recorded in the Journal or Ledge and thus do not appear in the Trial Balance.

Errors of commission

This means that a wrong amount is entered from the very starting in the Journal or Ledger and thus a Trial Balance based on this amount may not show any mistake at all.

Errors of principle

These errors occur when the classification of accounts is wrongly done. For example revenue expenditure may be considered as capital expenditure. Repairs of machinery $200 was debited to Machinery account whereas it should have been debited to ‘Repairs of machinery account’.

Complete reversal of entries

Complete reversal of entries cannot be revealed by Trial Balance. This is when entries have been made to both the sides and thus there is no arithmetical mistake. Good sold to Raman were entered as Sales debited and Raman Credited, whereas, it should have been vice versa.

Compensating errors

These errors are those which cancel themselves because the same error is committed on both sides. For example, Purchases were debited by $100 more and at the same time Sales were also credited by $100. This will neutralize the effect of both the entries.

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