The Trial Balance and Correction of Errors
Purpose of the trial balance
The trial balance lists all ledger balances at a date, with debits in one column and credits in the other. Its purpose is to check arithmetical accuracy - that total debits equal total credits. It does not prove the ledger is free of error.
Errors that do not affect the trial balance
Learn these because they are frequently tested:
- Error of omission: a transaction is completely left out.
- Error of commission: posted to the wrong account of the same type.
- Error of principle: posted to the wrong class of account (e.g. repairs debited to equipment).
- Error of original entry: wrong amount entered in the book of original entry and posted consistently.
- Error of reversal: debit and credit entered the wrong way round.
- Compensating errors: two errors cancel each other.
Errors that do affect the trial balance
One-sided postings, adding errors, and posting different amounts to each side will unbalance it. These are found by calculating the suspense account difference.
Traps to watch
Do not assume a balanced trial balance means no errors. Also, distinguish commission (same class) from principle (different class). When correcting, always state both the debit and credit of the correction entry.
Rule of thumb
Ask: "Did the error change the total of one side only?" If yes, use the suspense account. If both sides changed equally, no suspense is needed.
Worked example
Rent paid $90 was entered as $9 in both accounts. This is an error of original entry; debit rent $81 and credit bank $81. The trial balance still balanced, so no suspense entry is required.