Trial Balance
This domain tests preparation and interpretation of a trial balance, including which balances are debit or credit and which errors it fails to detect. Exam questions often give a list of balances and ask for missing figures or the effect of an error.
Core rules
- A trial balance lists ledger balances at a date, with debit balances in one column and credit balances in another.
- Debit balances normally include assets, purchases, expenses and drawings.
- Credit balances normally include liabilities, capital, sales, income and allowances.
- If totals differ, the difference is posted to a suspense account while the cause is investigated.
- A balanced trial balance does not prove accuracy: errors of principle, omission, original entry, reversal, compensating errors and some commission errors can still balance.
- The trial balance is not a statement of financial position or a statement of profit or loss.
Worked example
Balances are: equipment 5,000 debit; purchases 800 debit; cash 400 debit; payables 1,200 credit; capital 3,000 credit; sales 2,000 credit. Debit total = 5,000 + 800 + 400 = 6,200. Credit total = 1,200 + 3,000 + 2,000 = 6,200. The trial balance balances. This confirms arithmetic equality only. If a credit sale of 500 had been completely omitted, the trial balance would still balance but sales and receivables would both be understated.
Traps
- Treating a balanced trial balance as proof that no errors exist.
- Putting drawings or expenses on the credit side.
- Ignoring the suspense account when totals differ.
- Classifying accumulated depreciation as a debit balance.