CHAPTER 3 THE TRIAL BALANCE

trial balance title

trial balance for ---- as at --------

error of omission

very common, completely forgetting to record transaction may be due to a misplaced electricity bill or missing receipt

the trial balance

a list of all ledger account balances at a point in time, sorted according to whether there a debit or credit balance

Error of commission

the correct type of ledger but the wrong account name is used, eg) mixing up 2 trade receivable accounts such as D. Shaw and D. Shore or mixing up expenses

items credited in the trial balance

CREDIT Liabilities Income/revenue Capital (CLIC) purchases returns sales capital accounts for partnerships

errors that cause trial balance to disagree

1) ledger account incorrectly balanced off, missed off 2) debit entry made without corresponding credit entry 3) wrong side of one account + right side of the other recheck addition of both columns, find difference

items debited in trial balance

DEBIT Expenses Assets Drawings (DEAD) purchases sales returns

Error of complete reversal

The correct amount is entered in the correct accounts, but the entry has been made on the wrong side of each account

Error of original entry

This is where a wrong figure has been inputted into the correct accounts on the correct sides

Error of transposition

When two digits in an amount are accidentally record the wrong way around (divisible by 9 )

why should the trial balance balance - what can these balance be used for

double entry principle - preparing of the income statement + SFP

compensating error

if one account with a debit balance is overstated and another with a credit balance is overstated by the same amount, the errors will cancel each other out

error of principle

involves using the wrong class of account eg) purchasing a NC asset such as equipment and placing it into the purchases account

what is meant by Limitations of a Trial Balance

only as accurate as info gathered from ledger accounts so it is possible to have hidden errors