Trial Balance Errors and Their Correction
Table of Contents
Trial Balance Errors and Their Correction can be very time-consuming. These steps should help you correct the inconsistencies in your trial balance
A trial balance is generally a statement that shows the total credit and debit balances of accounts. In a trial balance, the total credit amounts should be equal to the total of credit amounts for a trial balance to balance. The trial balance, therefore, helps to verify the arithmetical accuracy of postings in ledger accounts. Still, Trial Balance Errors and Their Correction is an integral part of all financial accounting processes.
Trial balance accounting is critical in preparing financial accounts as it involves the summarization of all ledger accounts. When the credit amounts equal the debit amounts in the trial balance, it’s considered to be tallied. Therefore, arithmetically accurate. However, even a tallied trial balance isn’t always sufficient proof that the accounting process is arithmetically accurate. Here’s where Trial Balance Errors and Their Correction come into play.
Common Errors in A Trial Balance Account Preparation:
Trial Balance Errors and Their Correction may not be as common as people think. But they occur on rare occasions. Below is a brief of some errors that may occur when preparing a trial balance account:
- Error when totaling subsidiary books
- Wrong calculation of account balances
- Wrong totaling of credit amounts and debit amounts in the trial balance
- Showing the account balances with the wrong amount of in the wrong column in the trial balance
- Recording transactions incorrectly in the subsidiary books
- Recording transactions incorrectly in the journal
- Omitting account balances in the trial balance
- Error in posting journal entries to the ledger
- Wrong postings of the total of subsidiary books
Classification of Errors
Trial Balance Errors and Their Correction can be classified into three main categories, depending on the type of error. Below are 3 errors that affect the trial balance and how to identify them.
Errors of commission
These errors occur as a result of the wrong posting of transactions to the trial balance. The wrong totaling of accounts, the wrong casting of the daybooks, wrong balancing of accounts, and wrong recording of the amounts in the journals. Any of the above errors are considered errors of commission.
Errors of omission
These errors in trial balance accounts occur at the time of recording transactions in subsidiary books or journals. They may also occur at the time of posting. Errors of omission are of two types. These include the error of partial omission and the error of complete omission.
When an accountant records a transaction in the subsidiary book but doesn’t post it in the ledger, it’s considered an error of partial omission. On the other hand, when the accountant completely fails to record a transaction, it’s considered an error of complete omission.
These types of errors when the net effect of other errors is nil. These types of errors generally don’t affect the trial balance. It’s also known as the self-rectifying error and is usually more difficult to identify compared to other Trial Balance Errors and Their Correction.
Searching for Trial Balance Errors
In instances where the trial balance doesn’t tally, it’s important to search for and find out what the errors are and the best corrective measures to take. Below are the steps you should take to locate errors in a trial balance:
- Recheck the total credit and debit columns of the trial balance account
- Equate the account head with the ledger to determine the difference in the amount
- Compare the current trial balance account with that of the previous year to determine the additions or deletions of accounts. If you find a major difference in the account balance, ensure you verify it for correctness
- Balance your ledger accounts once more to check for errors
- Check the postings from the subsidiary books or journal entries
- Any difference may indicate the partial or complete omission of a posting.
Correction of Errors and Suspense Account
Suspense accounts and error correction are some of the most popular topics for examiners in institutions. That’s mainly because they help examiners to test their students’ understanding of bookkeeping principles. A suspense account is generally a temporary resting place for entries that will eventually end up somewhere else in the account once the accountant determines its final destination.
Two reasons may lead to the opening of a suspense account.
- The bookkeeper may be unsure of where to post an item. In such a case, he/she enters the item into a suspense account pending instructions or where to place it.
- The trial balance has a difference. Here, the suspense account is opened, and the amount of the difference recorded in it to make the trial balance account to agree, pending the discovery and correction measures of the errors that caused the difference.
Errors That the Trial Balance Can Help Detect
By now, it’s evident that the trial balance is an integral part of an accountant’s work. Accountants produce trial balances to help them check for any arithmetical accuracies in the general ledgers. Under the double-entry accounting system, each transaction involves at least one credit and one debit entry of equal value.
It, therefore, follows that the total amount of all credit entries must equal the total amount of all debit entries. As such, the trial balance qualifies as the list of credit and debit balances extracted from the general ledger. However, if the credit and debit balances don’t tally, then it’s always likely that the accountant made at least one error.
Here are some Trial Balance Errors and Their Correction that a trial balance can identify:
Calculation of Errors
In instances where the credit and debit columns of the trial balance account haven’t been tallied properly, an error will result. Ordinarily, this should be the first thing that an accountant checks. Consequently, extracting incorrect balances from other general ledger accounts will create errors in the total balance. You must, therefore, double-check your accounts before extracting them.
If, therefore, you wrongly cast the total of any subsidiary book, it would also cause a disagreement in your trial balance account.
Example: you under cast a sales book by $100. From the sales book, all accounts have still been debited correctly. The mistake occurred only in the sales account to $100 less. The trial balance will, therefore, disagree to the extent of $100. The credit side will fall short of $100.
Logically, errors made in general ledger postings also produce errors in your trial balance. Journal entries can, in particular, be very problematic and must be checked very carefully. Other common posting errors may include posting an incorrect amount, posting only half of the transaction, or posting both aspects of a transaction to the same side.
Posting of The Wrong Amount
Supposing you post the wrong amount in either of the two accounts, your trial balance will disagree. If, for instance, you made sales for $570, and wrongly debited it your account with $750 instead of $570. Your account will be over-debited by $180. The debit side of your trial balance will, therefore, exceed by $180.
Posting on The Wrong Side of Your Account
For example, you make a credit sale to a customer or $500 and credit it to the customer’s account instead of debiting it. Due to this error, the credit side of your trial balance will exceed by $1000 as a result of two credits without being a debit.
Posting Twice to A Ledger
If, for instance, you debit a salary of $500 paid to a salary account twice by mistake. Your trial balance account will disagree on the debit side by an excess of $500 that you must correct.
These are transactions that haven’t been recorded correctly. Accountants hardly ever discover this mistake. It’s normally discovered during bank reconciliations. Say, for example, you enter an invoice in accounts receivables as $20,000 instead of the $2,000 actually owing.
How you can find it: unfortunately, the trial balance doesn’t always show this error. In which case, you must do a bank reconciliation to determine whether there are any subsidiary entries in your trial balances. You can do this by checking the numbers in your accounts against the numbers in your bank statement.
If possible, try to do this as frequently as possible to minimize the number of subsidiary errors that need correction. If, therefore, you only check for subsidiary entries every five months, then you will have to sift through five months of records to identify where the mistake is.
Error of Omission
The error of omission often occurs when an accountant forgets to record a transaction in the books. It’s not uncommon for an accountant to forget to enter a paid invoice or sale of a service.
Say, for instance, you purchase a new business computer but forget to include the purchase in the books. It’s one of the most common occurrences of Trial Balance Errors and Their Correction to watch out for.
How to find it: these errors are usually a lot harder to discover, but not impossible. One effective way to determine an error of omission if by checking if your debits equal your credits in the trial balance account. You may have recorded a credit for a transaction but forget to debit it. Doing regular bank reconciliations can also help you to double-check your account books for even more accuracy.
Where possible, you should have a system in place where you can enter each of your transactions. Errors of omission can also crop up when a business uses petty cash as a mode of payment for its expenses. You won’t always be able to keep up with hundreds of receipts and paperwork. But if you can set up some time each week or month to record each of these receipts, the better.
This trial balance error occurs when two digits are transposed, or reversed. This generally creates an error in the books. It may look like a simple error but one that can completely throw off your accounting if not careful.
Example: you enter ‘3456’ instead of ‘3546’ into your accounting book,
How to find it: you can identify transposition Trial Balance Errors and Their Correction by comparing the total records in your trial balance with what your bank statement reads. If you find the difference between the totals evenly divisible by nine, then you probably have a transposition error to deal with.
Rounding off a figure may not seem risky when doing calculations, but it can make your accounting inaccurate. If not caught early enough, you may end up with a series of future errors that throw off your accounting completely. Unfortunately, rounding error isn’t confined to people alone. Even accounting software can end up making this mistake.
For instance, recording 23.976 instead of 23.9746 will produce very different results in the trial balance account.
College/university students are usually most prone to making this accounting error. The next time your professor hands you a takeaway assignment on Trial Balance Errors and Their Correction, you can try to visit myhomeworkwriters.com to help with your homework.
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How to find rounded errors: luckily, you can fix rounding errors easily by reconciling your books regularly. Do not let this small mistake snowball. Ensure that you nip it in the bud stage by checking your statements against your books as frequently as possible.
Errors of Principle
Also known as an input error. This error occurs when there’s a transaction that incorrectly uses the accounting principle. This type of error doesn’t meet the Generally Accepted Accounting Principles (GAAP). It generally occurs when you input the correct number in the wrong account.
Say, for instance, that you record business expenses in the personal expenses account in your books.
How to find it: to find errors of principle, you must scan your trial balance for potential errors. Credits and debits may still probably balance regardless of such errors.
Errors of Reversal
This error occurs when an accountant debits an entry instead of crediting it or vice versa.
For example, you send a $500 invoice to a customer but post it in the accounts payable account instead of the accounts receivable account.
How to find it: the best way to find this error is to check your trial balance to determine the difference between the debits and credits. They should balance or match. Remember, errors of balance could be in either credits or debits. So, you must be vigilant in your calculations.
Errors Not Revealed by Trial Balance/What the Trial Balance Won’t Disclose
By this stage, you should know that the trial balance doesn’t highlight all types of mistakes. You must, therefore, know all the Trial Balance Errors and Their Correction measures to be able to identify any errors in your accounts.
For instance, an error of omission, where the accountant doesn’t record any part of the transaction, won’t affect the trial balance in any way. The trial balance will also not detect transposing credit and debit entries in the general ledger. Thus, making two errors that end up canceling each other out.
Therefore, even though your trial balance account may be in agreement, it may have some errors while recording the transactions. These are also referred to as errors not revealed by the trial balance.
Check below for some of the common errors not revealed by trial balances
The Omission of The Recording of Accounts from Accounting Books:
Say the withdrawal of products worth $1,200 by the proprietor gets omitted from records in books, the trial balance account will still agree since both credit and debit accounts have been omitted from the record.
Recording Transactions at Amounts Different from The Actual Amount:
In this case, you purchase goods worth $7,500 but record it in your purchase goods account as $5,700. This error won’t affect your trial balance.
This is perhaps one of the most difficult errors to detect. If, for example, you allow for a cash discount of $215 to a customer, but post it to the credit of the customer’s account as $251. Then instead of making a cash sale of $2,851, you post it as$2,815. The excess credit caused by the first accounting error would be compensated exactly by the lower credit recorded in the second error. The trial balance will be in agreement and balance in this case.
Posting Aspects of Transactions on The Correct Sides of Wrong Accounts:
If the amount of $800 received from one debtor, ABC, and posted it to the credit of another debtor ABA, the trial balance totals still agree. That’s because both are considered debit accounts and have the same total effect.
Recording Both Aspects of Your Transactions Multiple Times in The Books of Accounts:
Say you make a sale of $3,500 to ABC Ltd. And record it in your sales book twice. This error won’t cause a mismatch in your trial balance totals.
Trial Balance Errors and Their Correction
Depending on the format that you use your general ledger, you can fix an incorrect trial balance account quickly. Generally, it’s a matter of changing a few numbers, and you should have a balanced account. If, however, you use a handwritten ledger instead, don’t have auto-update formulas, or don’t really know where you made the error, then fixing your account may require a bit more professionalism.
Fortunately, you can use a few common tips and tricks to fix these common accountant problems and keep more accurate books. Remember, however, that you cannot correct an error in a trial balance until you know where the error is and how to correct it. Trial Balance Errors and Their Correction require practice and patience but can be done.
The below steps should help determine journal entries to correct errors more effectively and quicker:
How to Identify and Correct Errors
So far, the easiest way you can find Trial Balance Errors and Their Correction is by retracing your steps to find out where you went wrong. Look at your ledger balances and compare them to the total amount your trial balance shows.
First, you must check your ledger debit and credit column balance. If the columns are equal, but your trial balance still doesn’t match your bank statement, then fixing the trial balance may require slightly different steps.
Look at your starting trial balance for the last stage you know was correct. If, for instance, you perform monthly reconciliations, then you can locate the ending trial balance of the previous month. Review the previous month’s ledger reconciliation and ensure that it’s arithmetically accurate.
Locate the starting trial balance of the specific period that you believe contains the error/s. from here, ensure you review each credit transaction in your ledger and its accompanying debit transaction. This is especially important if you’re correcting an error that has caused an imbalance. Ensure you pay special attention to the amounts.
Add or subtract the first inaccurate amounts that you find and see if this solves the problem. If it doesn’t, then it’s likely that your trial balance has more than one error. You may need to continue looking for more errors and the best steps to fix them.
Ensure you double-check your work for any additional errors if you don’t find any in your first pass. If possible, count the number of transactions in your ledger and compare that amount against the total number of transactions in your reconciliation statements.
Lastly, you will change any incorrect ledger entries that you find in your document and check that your ledger is correct. Update your running columns all the way down. Your trial balance should balance, provided everything is correct.
Trial Balance Errors and Their Correction is a critical aspect of every accountant’s work life. As an accountant, you must, therefore, ensure that you do your due diligence to try and avoid them as much as possible. If, however, you end up with a trial balance that doesn’t tally, the corrective measures mentioned above should get your accounts back on track. For professional trial balance error analysis contact our experts and get 15% discount on your first order.