Principles of Flight
A Trial Balance is a financial report that lists the names and balances of all the accounts in the general ledger of a business at a specific point in time. Its primary purpose is to verify the mathematical accuracy of the double-entry bookkeeping system by ensuring that the total of all the Debit balances equals the total of all the Credit balances.
📝 Errors Revealed by the Trial Balance -Errors that cause the total of the debit column to be unequal to the total of the credit column are revealed (or disclosed) by the trial balance.
These are typically one-sided errors.
* Partial Omission of an Entry: When a transaction is recorded in only one account (either debited or credited) and the corresponding entry is missed. * Example: Salary paid is debited to the Salary Account but not credited to the Cash/Bank Account. * Posting to the Wrong Side: Posting an amount to the correct account but on the wrong side (e.G., debiting an account when it should have been credited). * Example: Rent paid is correctly debited to the Rent Account, but the Cash Account is also incorrectly debited instead of credited.
* Posting the Wrong Amount (One-Sided): Posting the correct amount to one account but an incorrect amount to the corresponding account. * Example: Credit sale of ₹5,000 is correctly credited to the Sales Account but incorrectly debited to the Debtor’s Account as ₹500.
* Error in Balancing or Casting (Totalling): Mistakes made while calculating the balance of a ledger account or totalling the subsidiary books (like the Sales Day Book or Purchase Day Book). * Error in Carry Forward: Incorrectly carrying a balance or total from one page of a ledger/subsidiary book to the next, or from a ledger account to the trial balance.
* Omission of an Account from the Trial Balance: Forgetting to list an entire ledger account (and its balance) in the trial balance.
idden Errors (Not Revealed) by the Trial Balance
Errors that do not affect the equality of the debit and credit totals are not revealed (or undisclosed) by the trial balance. Since the totals still match, the errors can only be found through detailed checking or audit. These are typically two-sided errors.
1. Error of Omission (Complete)
* Definition: A transaction is completely omitted from the books, meaning no entry was made at all in the journal or ledger.
* Effect: Since both the debit and credit aspects are missing, the equality of the trial balance is unaffected.
* Example: A credit purchase of ₹1,000 is never recorded.
2. Error of Commission (Wrong Account, Same Class)
* Definition: The correct amount and the correct side (debit/credit) are used, but the entry is posted to the wrong account within the same class (e.G., one debtor account instead of another).
* Effect: The debit total still equals the credit total.
* Example: Goods sold to Karan are correctly debited and credited, but the debit is posted to Kunal’s Account instead of Karan’s Account.
3. Error of Principle
* Definition: An error that violates fundamental accounting principles, such as incorrectly classifying a capital expense as a revenue expense or vice versa.
* Effect: The debit amount equals the credit amount, but the wrong category of accounts is affected.
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Example: Purchase of new furniture (Capital Expenditure) is debited to the Repairs & Maintenance Account (Revenue Expenditure) instead of the Furniture Account.
4. Compensating Errors
* Definition: Two or more errors made in opposite directions that cancel out the net effect on the trial balance totals.
* Effect: The total debit side might be understated by ₹500, and the total credit side might also be understated by exactly ₹500 due to separate, unrelated errors. The trial balance still tallies.
* Example: Sales Account (Credit) is overcast by ₹100, and Purchase Account (Debit) is also overcast by ₹100.
5. Error of Original Entry (Wrong Amount)
* Definition: A transaction is recorded with the wrong amount in the book of original entry (Journal or Subsidiary Book), but the subsequent double entry is posted correctly based on that incorrect amount.
* Effect: Since the equal (though wrong) amount is debited and credited, the trial balance remains balanced.
* Example: A credit sale of the actual value ₹980 is recorded in the Sales Day Book as ₹890. Both the Debtor’s Account (Debit) and Sales Account (Credit) are posted as ₹890.
6. Complete Reversal of Entry
* Definition: The entire double entry is reversed, meaning the account that should have been debited is credited, and the account that should have been credited is debited.
* Effect: The total debits still equal total credits.
* Example: Cash received from a debtor is debited to the Debtor’s Account (instead of Cash) and credited to the Cash Account (instead of the Debtor’s Account).