Ledgers, Trial Balance and Correction of Errors
What the exam tests
This domain tests posting from books of prime entry to ledger accounts, balancing accounts, extracting a trial balance, and correcting errors using journals and the suspense account. Expect questions on errors that do and do not affect the trial balance.
Core rules
- Ledger accounts collect transactions by account; the trial balance lists debit and credit balances and should agree if double entry is complete.
- Errors of omission, commission, principle, original entry, reversal and compensating errors do not make the trial balance disagree.
- A one-sided posting or addition error does make the trial balance disagree; the difference is placed in a suspense account until corrected.
Worked example
A trial balance has debit totals exceeding credit totals by 90. Investigation shows rent paid of 450 was entered in the rent account as 540. Rent has been debited 90 too much. The correction is: Dr Suspense 90; Cr Rent 90. The suspense account is cleared and the rent expense is reduced to the correct 450. The original error affected only one account, so it caused a trial balance difference.
Traps
Do not assume every error affects the trial balance. An error of principle, such as treating a machine purchase as repairs, still has equal debits and credits and will not be revealed by the trial balance. Do not clear a suspense balance without identifying its cause. When correcting, check the direction: an over-debit is corrected by a credit.
Key points
- A trial balance proves arithmetical equality, not accuracy.
- Six common errors leave the trial balance in balance.
- Suspense accounts correct one-sided differences only.
- Corrections use journal entries with narrations.