The trial balance is a list of accounts with their debit or credit balances. It is usually prepared at the end of an accounting period. The advantages of using a trial balance are:
- it reveals mathematical errors since total debits must equal total credits, and
- it assists in the preparation of financial statements. It should be noted, however, that trial balances cannot detect every type of error.
The first step in preparing a trial balance is to calculate the balance of each of the accounts in the general ledger. Some of the errors that the trial balance will not reveal are for instance:
- journalizing a transaction twice,
- forgetting to record a transaction,
- entering an erroneous but identical amount in debit and credit,
- posting part of a transaction as a debit or credit to the wrong account.
Errors that cause the trial balance not to balance are
- the beginning amount of an account was incorrectly recorded,
- a debit entry was posted as a credit entry,
- a debit or credit balance was omitted,
- a digit in a number was moved one or more spaces (known as slide).
Determining the amount of the difference between debit and credit can help to look for such amount. For instance, when a debit and a credit were interchanged, the trial balance difference will be twice this amount.
A major function of an auditor is to find accounting errors.
What can be done if a trial balance does not prove?
The following steps can generally help discover errors more quickly!
- Add columns once more and determine the difference.
- Check if the error could be a transposition, slide, or mathematical error.
- Compare the balances of the ledger with those of the trial balance.
- Recompute each ledger account balance.
- Check all postings in the ledger by referring back to the journal.
- When an error is found, (or part of it) add again all debits and credits to check is they are now equal.
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