Accountancy · Ch 5 — Trial Balance and Rectification of Errors
Summary
Summary
- A trial balance is a statement that lists the ledger balances (debit and credit) on a given date, prepared to verify the arithmetical accuracy of the books. Its fundamental principle: total of all debit balances must equal total of all credit balances.
- The trial balance is not a proof of complete accuracy — errors that do not break the equality (e.g., compensating errors, errors of principle, complete omission) remain undetected.
- Errors disclosed by the trial balance (when totals disagree) include: posting to the wrong side, wrong amount posted, omission of a posting from one side, and casting (totalling) errors in subsidiary books.
- Errors not disclosed by the trial balance (when totals still agree) include: errors of omission (both entries missed), errors of commission (wrong account but same side), errors of principle (violating accounting rules, e.g., treating revenue expense as asset), compensating errors, and complete reversal of entries.
- Rectification depends on when the error is found:
- Before preparation of trial balance: errors are corrected by journal entries (if both aspects are affected) or by direct ledger posting correction (if only one side is wrong).
- After preparation of trial balance (and before final accounts): all errors are corrected via journal entries — no direct ledger changes.
- Suspense account is a temporary account opened when the trial balance does not agree. The difference is placed in the suspense account to make the totals match. Later, when errors are located and rectified, the suspense account is closed. …