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This article discussed the different type of errors which do not affect the agreement of the Trial Balance.

When these type of errors are discovered, their correction is journalized in the General Journal to be posted to their respective ledgers. Errors Of Omission Occurs when a transaction is being COMPLETELY OMITTED from the books Example: A cash receipt of $500.00 from a trade debtor, Mr.ABC has been omitted from the books The correcting entry should be: Debit: Bank $500.00 Credit: Mr ABC $500.00 Being omission of aforesaid entry now adjusted Errors Of Commission An entry has been posted to the correct side of the Ledger but to the wrong account. Example: Billing to Mr. A of $500.00 was wrongly posted to Mr Bs a/c [ both are trade debtors in the books of account] Debit: Mr. A $500.00 Credit: Mr. B $500.00 Being correction of error, sales to Mr. A wrongly debited to Mr. Bs account. Errors Of Principle

A transaction which is incorrectly dealt with like should be taken up into expenses a/c (income statement) but now wrongly taken up into the balance sheet a/c Example: Office maintenance of $1,000.00 wrongly posted into Machinery a/c Debit: Office maintenance a/c $1,000.00 Credit: Machinery a/c $1,000.00 Being correction of error, revenue expenditure being treated incorrectly as capital expenditure Compensating Errors An error on the debit side being compensated by an error of equal amount on the credit side. Example: Purchases a/c was overcast by $1,000.00 and so is Sales a/c Debit: Sales A/c $1,000.000 Credit: Purchases a/c $1,000.00 Being correction of overcasts of $1,000 each in the Sales a/c and Purchases a/c which compensated for each other. Errors Of Original Entry A wrong amount is recorded in the subsidiary book and posted to the accounts Example: A sales to Mr. A $560.00 was entered in the books as $650.00 Debit: Sales $90.00

Credit: Mr. As a/c $90.00 Being correction of error, sales overstated by $90.00 Complete Reversal Of Entry This is where the correct accounts are used but each item is shown on the wrong side of the account. Example: Payment of $100.00 to trade creditor Mr. X was entered on the debit side of the Cash book in error and credited to Mr. Xs a/c This type of error requires an adjustment to cancel the error and the actual entry itself. Normally, this is done by one journal adjustment by doubling the actual amount first recorded. Debit: Mr Xs a/c $100.00 x 2 = $200.00 Credit: Bank a/c $200.00 Being correction of error, payment of cash to Mr. X $100.00 debited to cash and credited to Mr. X incorrectly.

3. The Trial Balance


Trial Balance
Before preparing financial statements at the end of a period, the books must be balanced, i.e. to determine total debits equal total credits. This is determined by preparing a trial balance. A Trial Balance is a list of accounts and their current balances at a given date. It is usually prepared on the last day of the accounting period and the list of account balances are arranged according to debit and credit balances.

Debit balances are listed in one column and credit balances are listed in another. The two column totals should be equal. When this occurs, the ledger is said to be in balance.

Purpose for Preparing a Trial Balance


The primary purpose of a Trial Balance is to prove the mathematical equality of debits and credits in the ledger. According to the double-entry system of recording, if a debit and a credit have been made for each transaction, the total of the debits should be equal to the total of the credits. If the accounts are balanced off and their balances compared, the total of debit balances should be equal to the total of credit balances. In addition, the Trial Balance is useful in the preparation of the Trading and Profit and Loss Accounts, and the Balance Sheet since it lists all the account balances in the ledger.

Note: a trial balance is prepared for two reasons To check the arithmetic accuracy, i.e. The debit totals and the credit totals should be equal if the double- entry system of book-keeping is followed. To write up the financial statements, i.e. Trading and Profit & Loss Accounts, and Balance Sheet.

i. ii.

Limitations of a Trial Balance


Although the Trial Balance is used to prove the accuracy of the double-entry system of recording, it has its limitations. A Trial Balance that balances does not prove that all the transactions have been recorded or that the ledger is correct. This is because numerous mistakes may exist even though the Trial Balance totals are in agreement.

Types of Errors
Errors can be classified into two categories

Errors not revealed by the Trial Balance Errors revealed by the Trial Balance

Errors Not Revealed by the Trial Balance


The following errors do not affect the equality of the Trial Balance totals: 1. Errors of Omission: A transaction is omitted completely from the books so that there is no debit and credit entry of the transaction, e.g. Drawings of $50 cash by the proprietor was not recorded.

2. Errors of Commission: An entry is posted to the correct side of the ledger but to the wrong account, i.e. items have been posted to the wrong account of the same class, e.g. Payment of $100 cash by a customer A. John was wrongly posted to the account of another customer, B. Johan. 3. Errors of Principle: An entry is made in the wrong class of account, i.e. when an expense is treated as an asset and vice versa, e.g. Repairs to building $400 was debited to the Building Account. 4. Complete Reversal of Entries: An account that should be debited is credited and vice versa, e.g. A cheque $200 received from Cyril was debited to the account of Cyril and credited to the Bank Account. 5. Compensating Errors: Errors (or error) on one side of the ledger are compensated by an error (or errors), e.g. The Purchases Account and Sales Account were both overcast by $150. 6. Errors of Original Entry: The original figure may be incorrectly entered although the correct double-entry principle has been observed using this incorrect figure, e.g. Credit sales of $87 to Kay was recorded in the Sales Account and Kay's account as $78.

Errors Revealed by the Trial Balance


Errors which are revealed by the Trial Balance are those errors which cause the Trial Balance totals to be in disagreement. 1. Errors in Calculation: If there is any miscalculation of the Trial Balance totals or the net account balances, the Trial Balance will not balance, e.g. There was an error in the calculation of the cash balance, causing the Trial Balance totals not to balance too. 2. Errors in Omission of One Entry: Omission of either the debit or credit entry of a transaction will cause the totals of the Trial Balance not to agree, e.g. A cheque $500 received for commission was debited to the Bank Account only. 3. Posting to the Wrong Side of An Account: Entry into the wrong side of an account will cause one side of the ledger to be more than the other, e.g. A cheque of $800 paid to creditor, K. Wang was credited instead of debited to his account. 4. Errors in Amount: If the debit entry of a transaction differs in amount with the credit entry, the Trial Balance will not balance, e.g. Cash $134 received from Caine was debited to the Cash Account as $134 and credited to the account of Caine as $143.

Summary

An account has a debit balance when its debit total exceeds its credit total.

An account has a credit balance when its credit total exceeds its debit total. Asset, expenses and drawings accounts have debit balances. Liability, capital and revenue accounts have credit balances. A Trial Balance is a list of debit and credit balances extracted from the accounts in the ledger at a particular date. The Trial Balance is prepared for the purpose of checking the arithmetical accuracy of the entries made in the ledger. The total debit balances will equal the total credit balances in the Trial Balance if the double-entry principles of recording have been strictly adhered to. Errors that effect the agreement of the Trial Balance totals are wrong calculation of balances, omission of either a debit or credit entry of a transaction, entry on the wrong side of an account, and errors in amount. Errors that do not affect the agreement of the Trial Balance totals are complete omission of entries of a transaction, errors of commission, errors in principle, compensating errors, and errors in original entry. Asset and liability accounts are balanced and their balances brought down to the next accounting period. Personal accounts record transactions with persons who have dealings with the business, e.g. debtors and creditors accounts.

Trial Balance Errors


Guest Author - Consuelo Herrera, CAMS, CFE BusinessDictionary.com, states that in a double entry bookkeeping, it is the aggregate of all debit and credit balances at the end of an accounting period that: (1) Shows if the general ledger is in balance (total debits equal total credits) before making closing entries, (2) Serves as a worksheet for making closing entries, and (3 Provides the basis for making draft financial statements. The act of totaling debit balance and credit balances to confirm that total debits equal total credits. The trial balance is the statement of all the balances from the ledger and cashbook on a given date. It is useful because it brings up the presence of some errors during the process of journalizing or posting.

Although debits may equal credits, this does not necessarily mean that there were no errors in the recording of the transactions. It does not mean that transactions were recorded accurately. Some common mistakes that do not prevent a trial balance for meeting the conditions that total debits are equal to total credits are: Including an entry twice, a transaction not included at all, or included for an incorrect amount. Errors that may be exposed by the trial balance are: o Errors of calculation, making errors in arithmetic o Errors of omission of one entry or recording only half an entry, such as a debit without a corresponding credit or, vice versa o Posting to the wrong side of an account. For example recording both entries on the same side such as two debits instead of a debit and a credit o Errors in amounts, such as recording one or more amounts incorrectly. There are errors that cannot be detected by the trial balance: o Errors of commission The correct amount has been entered but it has affected the wrong vendor or debtor. For example: Two vendors with the same last name. One of them would have an incorrect balance, J. Smith as opposed to R. Smith. o Errors of omission When a transaction is completely omitted from the accounting records o Errors of principle If an amount is entered in the wrong type of account. For instance recording the purchase of a fixed asset as an expense. o Transposition Errors The correct amount should have been $519 not $591. Usually only this type of affects one side of the entry mistakes which makes it difficult to detect the error if it has affected both sides of the equation. The clue in a transposition is that the difference in account balances or trial balance totals is evenly divisible by 9. Whit a transposition, the digits have been switched around. (591 - 519 = 72, which is evenly divisible by 9. 72/9 = 8) o Errors of original entry If the original entry is incorrect. For example, a purchase of $125 was recorded as $225. Both the debit side and the credit side reflect $225. If this purchase was on credit, both the purchases account and the payable would be overstated. o Compensation errors This happens when errors effectively cancel each other out. For example, when both the debit and the credit sides have been added a given amount too much. Sales account was added up to be $150 more than it actually is and the purchase account was also added up to be $150 more than it actually is, then these errors will compensate each other when the trial balance is prepared. o Complete reversal of entries - if double entries are completely reversed, i.e. we debit an account, which should be credited, and credit an account, which should be debited, then the trial balance will still balance, even though the transaction has been recorded, completely incorrectly. Correcting Trial Balance Errors

Corrections to double entry accounts should be made via the journal so that a permanent record of the mistake is recorded and how it was corrected.