Trial Balance is a list of closing balances of ledger accounts on a certain date and is the first step towards the preparation of financial statements. It is usually prepared at the end of an accounting period to assist in the drafting of financial statements.
8.1 Preparation of the trial balance
8.2 Limitation of the trial balance
We have seen that the trial balance is a method used to test the accuracy of the accounting records.
Therefore, if the two columns of the list are not equal, there must be an error in recording the transactions in the accounts. However, the trial balance will not disclose the following types of errors.
- The complete omission of a transaction, because neither a debit nor a credit is made.
- The posting of a debit or credit to the correct side of the ledger, but to a wrong account.
- Compensating errors (e.g. an error of $500 is exactly cancelled by another $500 error elsewhere).
- Errors of principle, e.g. cash from receivables being debited to receivables account and credited to cash at bank instead of the other way round.
Recommended text/reading:
- Sangster, A., & Wood, F. (2019). Business accounting volume 2 (14th ed.). Pearson.
- Sangster, A., & Wood, F. (2018). Business accounting volume 1 (14th ed.). Pearson.
- Weagant, J.J., Kimmel, P.D., & Keiso, D.E. (2018). Accounting principles (12th ed.). Wiley. (for this ebook you need to join this channel >> accounting <<
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