Trial balance Essay

The term trial balance is a Financial Accounting word and it means a listing of various ledger accounts’ balances as per given moment in time of a business’ transactions.  Usually the trial balance has two sides – the debit side and the credit side.  Both the totals of the debit side and the credit side should normally equal after a trial balance has been prepared.  Even though the trial balance is said to be in balance, it doesn’t mean that all the transactions of the business were recorded in their equivalent accounts or amounts.  A trial balance’s balancing merely indicates that for every credit there was a corresponding debit balance and thus the process of double entry was adhered to.

A trial balance is prepared to prove that the double entry requirements have been fulfilled and further the accuracy of the ledger accounts.  The double entry prove of accounting adherence doesn’t however mean that the trial balance has no errors.  For instance, entries in the ledger accounts might have been recorded in the wrong accounts altogether - Trial balance Essay introduction. (Eisen, 2003)

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Tomas in this particular context, by adding the difference as a miscellaneous expense, did not act professionally.  The essay is going to try and answer, comprehensively, the question, “what are the errors that can cause a trial balance not to balance and how should they be treated?”

The failure to balance of a trial balance means that there was an error and this particular case indicates that there was a significant error.  Had Tomas behaved professionally, there are various ways used to locate such an error and which are allowed by Generally Accepted Accounting Principles (GAAP). These methods are mentioned as follows; firstly, in case this error was in rounding off of figures it could have been caused in totaling or by the carrying forward of the amount in subsidiary books to their respective ledger accounts; secondly, if the mistake wasn’t in the rounding off of figures, it might have been committed while posting and lastly, if the difference is a significant amount, as mentioned in the particular scenario, the major possibility is that a given ledger account has been omitted while preparing the trial balance.  Therefore, Tomas should have checked for any omitted ledger account before recording it as a miscellaneous expense.

Further, if the error isn’t still detected by the aforementioned methods, some other measures can still be used to resolve the problem.  Where the difference is a large amount and it remains undetected he should have compared the current trial balance with the previous.  Other measures to detect include; checking that the bank balance, cash balance, discount received and discount allowed are included in the trial balance, checking the list of creditors and debtors, also subsidiary books’ totals should be checked and their carry forwards and lastly, the posting of balances from the ledger accounts should be checked.

If all the above methods have been applied in checking for the errors and they are not yet located, the difference in the trial balance should be transferred to an account known as a suspense account, but temporarily, to facilitate for the closure of the trial balance.  Efforts to locate the error should proceed and if the error has been rectified the suspense account should be closed.

There are also errors that could have been undetected by the trial balance and they cannot be ruled out in this case.  These errors can be in the trial balance despite the trial balance’s balancing.  They include the error of omission, error of principle, posting to the wrong accounts, compensating error and incorrect accounts in the original books.

The error of omission occurs where the entire transaction ends up being unrecorded in the books of account.  For example, a return of goods which’s not reflected in the relevant books of account.  Thus, this error cannot be reflected anywhere in the trial balance.

The error of principle happens where the normal double entry is carried out, but due to the ignorance of the accountant carrying out the entry he/she enters in the wrong accounts. For example, purchasing a motor vehicle should be recorded in the motor vehicle account, but if an accountant enters the amount in the purchases account, an error of principle has been committed.

Posting in the wrong accounts happens where posting from a debit side (or other wise) from a cash book, sales book and others, is done to the wrong account but in the rightful side.  The trial balance cannot detect such an error.  Compensating errors occur where the effect of a given error is compensated or neutralized by the effect of another error.

The error of original entry occurs where the name of the wrong account is used in the subsidiary books or journal entries, thus the trial balance failing to detect the same.

The conclusion of the essay is that Tomas as an accountant did not act professionally and thus should have been punished.  Otherwise the methods explained to detect errors should have been applied in this scenario.







Eisen, P.J. (2007) Accounting the Easy Way. Barron’s Educational Series.

FutureAccountant.Com. (2008). Preparation Of A Trial Balance. Retrieved on October             31, 2008 from         notes/trial-balance.php

Laxmi Publications (2005) Comprehensive Financial Accounting XI. Laxmi Publications



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