The Trial Balance

Definition: A trial balance is a list of

balances on the accounts in the ledger at a
certain date.

Note: It is not a part of the double entry system. It

Uses/ Purpose of a Trial Balance
1. It helps in locating arithmetical errors.
2. It is useful in preparing financial statements
(Income Statement & Statement of Financial Position)
3. It helps in the rectification of errors
4. To check the arithmetical accuracy
5. To know the ending balance of each account at a
glance
Limitations of a Trial Balance
1. It does not prove that all transactions have been recorded
2. Numerous errors may exist even though the trial balance columns agree
 Format of Trial Balance
Name of the account Debit($) Credit($)
Capital √
Drawings √
Premises √
Discount Received √
Discount Allowed √
Salary √
Provision for Depreciation √
Bank Balance √
Bank Overdraft √
Inventory (only opening inventory NOT closing inventory) √
Cash √
Trade Payables √
Trade Receivables √
Total (Debit = Credit) √√√ √√√
 The trial balance & errors
If the trial balance fails to balance, the reasons may be as follows:

1. an error of addition within the trial balance

2. An error of addition within one of the ledger accounts

3. Entering a different figure on the credit ti that entered on the debit when
making a double entry in the ledger

4. Making a single entry for a transaction rather than a double entry

5. Entering a transaction twice on the same side of the ledger

Types of Errors not revealed by a Trial Balance

Error of commission
This occurs when a transaction is enteres using the correct
amount and on the correct side,but in the wrong account
of the same class ( Personal, Real or Nominal).

Example: Cash received from Sara credited to Saira’s account

Correct Entry Debit Credit Wrong Entry Debit Credit

Cash √ Cash √
Sara √ Saira √
Types of Errors not revealed by a Trial Balance

Error of complete reversal

This occurs when the correct amount is entered in the
correct accounts, but the entry has been made on the
wrong side of each account.

Example: Cash drawings debited to the cash account

and credited to the drawings account.
Correct Entry Debit Credit Wrong Entry Debit Credit
Drawings √ Cash √
Cash √ Drawings √
Types of Errors not revealed by a Trial Balance

Error of omission
This occurs when a transaction has been completely
omitted from the accounting records. Neither a debit entry
nor a credit entry has been made.

Example: Payment of wages not entered in the books.

Correct Entry Debit Credit Wrong Entry Debit Credit

Wages √ NO ENTRY
Cash √ NO ENTRY
Types of Errors not revealed by a Trial Balance

Error of original entry

This occurs when an incorrect figure is used when a
transaction is first entered in the accounting records. The
double entry will therefore use the incorrect figure.

Example: Goods, $100, bought but recorded as $1000.

Correct Entry Debit Credit Wrong Entry Debit Credit
Purchase 100 Purchase 1000
Cash/Bank 100 Cash/Bank 1000
Types of Errors not revealed by a Trial Balance

Error of principle(rule)
This occurs when a transaction is entered using the correct
amount and on the correct side, but in the wrong class of
account.

Example: Motor expenses debited to the motor vehicles account.

Correct Entry Debit Credit Wrong Entry Debit Credit
Motor Expenses ( Nominal) √ Motor vehicles (Real) √
Cash/Bank √ Cash/Bank √
Types of Errors not revealed by a Trial Balance

Compensating Errors
These occur when two or more errors cancel each other
out.
Example: Purchases account under-added by $100 and
sales returns account over-added by $100.
Explanation: Purchases account which always has a debit balance is reduced
by $ 100- so the debit total in a trial balance is reduced by $100.

Sales returns account which always has a debit balance is increased by $100-so the
debit total in a trial balance increases by $100.

This was what was reduced in one account has been increased in another account.