Trial Balance, Correction of Errors and Control Accounts
What this domain tests
This domain tests whether you can extract a trial balance, classify errors as those that do and do not affect it, correct errors through the general journal and suspense account, and prepare sales and purchases ledger control accounts that reconcile to the ledger balances.
Core rules
- A trial balance is a list of debit and credit balances at a date. Agreement proves arithmetic accuracy only, not the absence of error.
- Errors not affecting the trial balance: complete omission, error of commission (right class, wrong account), error of principle (wrong class), error of original entry, compensating errors, complete reversal of entries.
- Errors affecting it: one side of an entry omitted, posting to the wrong side, a transposition made in one account only, addition errors, the same side debited twice.
- A suspense account holds the difference temporarily. Each correction is journalised; when every error is found the suspense balance is nil.
- Sales ledger control (receivables): debit opening balance, credit sales, dishonoured cheques, interest charged; credit receipts, returns inwards, discount allowed, bad debts, contra, closing balance.
- Purchases ledger control (payables): credit opening balance and credit purchases; debit payments, returns outwards, discount received, contra, closing balance.
- A contra between ledgers is debit purchases ledger control, credit sales ledger control.
Worked example
Opening debtors $12,000; credit sales $45,000; receipts $38,000; returns inwards $1,500; discount allowed $800; bad debts $300; contra $200. Debit side: 12,000 + 45,000 = 57,000. Credit side: 38,000 + 1,500 + 800 + 300 + 200 = 40,800. Closing balance c/d = 57,000 − 40,800 = $16,200, carried down as a debit balance. Reasoning: every item that reduces what debtors owe sits on the credit side of the control account, and the contra appears there because the same customer is also a supplier.
Traps that cost marks
- Including cash sales in the debtors control account.
- Putting the closing balance on the wrong side, so the account fails to balance.
- Forgetting discount received on the debit side of the purchases ledger control.
- Treating a balanced trial balance as proof that the books are correct.
- Opening a suspense account for an error that would not have caused a difference.