Errors in Trial Balance and Procedure to Locate Errors

SHARE

Tally Solutions | Nov-20-2019

The objective of preparing trial balance is to a counter check process to test the accuracy of posting. If the trial balance agrees it proves that the books are arithmetically accurate, and the two aspects of the transactions (Debit and Credit) have been recorded in the books of original entry as well as in the ledger. In this article, we will discuss errors in the trial balance and steps to locate errors.

Errors affecting Trial Balance

We know when the sum total of two columns of Trial Balance tallies, then it means that the Trial Balance is in agreement with books of accounts. But it also means that the accounting entries have been arithmetically correct and has been correctly posted in the ledger.

But if the Trial Balance does not tally, then there could be errors in transaction entry. Such errors are called ‘Errors affecting trial balance’. These can be:

    • Where only one effect of a transaction is posted to ledger e.g. for rent paid in cash, if entry is posted to cash but not to rent account, then obviously the Trial balance will not match
    • Wrong posting of the amount in one of the ledger accounts e.g. rent of ` IDR 1,000 is paid in cash. The posting to Rent A/c is done for `IDR 1,000, Cash A/c is recorded at ` IDR 10,000. Then too the Trial balance will not tally
    • If one of the postings is entered twice, then too the Trial balance will not match
  • If the balance in a ledger is not correctly taken to the trial balance. e.g. the Rent A/c has a balance of ` IDR 1,000, but while taking it to the Trial Balance. it is taken as ` IDR 100, then the Trial Balance will throe up differences
  • Taking balance to the wrong side in the Trial Balance e.g. a debit balance of ` IDR 5,00,000 in Debtors A/c is taken as credit balance in the Trial Balance, then there will be a mismatch
  • Wrong carry forwards also will result in the trial balance. mismatch

Errors not affecting Trial Balance

There are certain types of errors that will not affect tallying of the Trial Balance. i.e. it will tally but still there will be errors. These are as follows:

    • The error of omission: If any entry is totally missed, the Trial Balance will tally but will be incorrect and incomplete
    • Compensating error: If there are two errors that are compensating each other, still, the Trial Balance will tally but not accurate
  • Wrong Account head: If entry for insurance paid is wrongly debited to Commission A/c, tallying of Trial Balance will not be affected
  • The error of duplication: If a transaction is recorded twice, again the Trial Balance will match.
  • The error of principle: If interest received is wrongly entered as debit to interest and credit to cash, there won’t be any mismatch in the Trial Balance

For the type of errors mentioned above, the identification process is very time-consuming. Only strict vigil and ongoing audit of entries could minimize such errors. Of course, the computerized accounting packages such as Tally.ERP 9 systems do provide built mechanisms to avoid occurrence of these mistakes.

After preparation of Trial Balance, if the difference not major, it is temporarily transferred to “Suspense A/c’ until the errors are located and corrected.

Errors which are not disclosed by Trial Balance

There are also errors which cannot be detected by a Trial Balance:
They are as follows:-

    • Error of Omission: When the transaction is not at all recorded in the books of accounts, i.e. neither in the debit side nor in the credit side of the account – trial balance will agree.
    • Error of Commission: Where there is any variation in figure/amount, e.g. instead of ` IDR 800 either ` IDR 80 or `IDR 8,000 is recorded, in both sides of ledger accounts – trial balance will agree.
    • Error of Principal: When accounts are prepared not according to double-entry principle e.g. Purchase of a Plant wrongly debited to Purchase Account – Trial balance will agree.

 

  • Error of Posting in Wrong Leger: When wrong posting is made to a wrong account instead of a correct one although the amount is correctly recorded, e.g., sold goods to B but wrongly debited to C’s Account – trial balance will agree.
  • Error of Compensation: When one error is compensated by another error e.g. Discount Allowed `IDR 100 not debited to Discount Allowed Account, whereas interest received `IDR 100, but not credit to Interest Account trial balance will agree.

Procedure to locate errors in a Trial Balance

If the Trial Balance does not tally, the following procedure should carefully be followed:

  • At first, check all ledger account balance one by one.
  • Addition of both the columns ( Debit and Credit ) should be checked.
  • If any difference, divide the same by 2 and see whether the said figure appears on the correct side or not.
  • Additions of the subsidiary books, and ledger accounts to be checked up.
  • Posting from subsidiary books to the ledger to be checked up.

 

Read More on Trial Balance

What is Trial Balance, How to Prepare Trial Balance, Methods to Prepare Trial Balance, Rules & Examples of Trial Balance

TallyPrime

Inspired by the way you work, Tally is designed to delight you. Try out the all new

TallyPrime