4

Preparing the Trial Balance

 4.5 Preparing the Trial Balance

A trial balance is a list of all accounts and their

balances at a given time.
It is to verify that total debits equals total credits.
It is usually prepared at the end of the accounting
period.
Uncovers errors in journalising and posting
Procedures for preparing a trial balance:
– List all account titles and their balances
– Total the debit and credit columns
– Prove the equality of the two columns
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 4.5 Preparing the Trial Balance
(cont.)

Limitations of a Trial Balance

Even though its purpose is to prove the accuracy
of the double-entry system, a trial balance does not
prove that all transactions have been recorded
correctly.
Two categories of the errors:
– Errors not Affecting the Trial Balance – it will still
balance despite the recorded errors.
– Errors Affecting the Trial Balance – errors will
lead to a disagreement in the total debits/credits.
Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved
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 4.5 Preparing the Trial Balance
(cont.)

 Errors Not Affecting the Trial Balance

– Error of omission: A transaction is omitted and not
recorded at all.
– Error of commission: A transaction is recorded on
the wrong account of the same class.
– Complete reversal of entries: Offsetting errors are
made in recording the amount of a transaction.
– Error of principle: A transaction is recorded in the
wrong class of account.
– A journal entry is posted twice.
Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved
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 4.5 Preparing the Trial Balance
(cont.)

 Errors Affecting the Trial Balance

– Error of omission of one entry: Only one entry is
made for a transaction.
– Error of posting to the wrong side of an account
– Error of transposition: This occurs when the
amount is correctly recorded in one side of the
accounts, but wrongly recorded in the other
side.

Fundamentals of Financial Accounting (SECOND EDITION) All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2018 4–6