Posted by: slang in k. Trial Balance
A Trial Balance that balances DOES not necessarily prove that all the transactions have been recorded or that the accounting process is error-free.
Numerous errors or mistakes can exist even though the trial balance totals are in agreement. This can be categorized in two parts namely:
- Errors that CAN BE REVEALED by the Trial Balance and (Part1)
- Errors that CANNOT BE REVEALED by the Trial Balance(Part2)
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(A) ERRORS OF OMISSION
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- A transaction is totally omitted from the books so that there is no debit and credit entry of the transaction for example payment of $3,000 were not recorded.
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| (B) ERRORS OF COMMISSION |
- An entry may be posted to the correct side of the ledger but to the wrong account for example- payment of $1,500 cash by customer Mr A is wrongly posted to the account of another customer Mr B.
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| © ERRORS OF PRINCIPLE |
- An entry is made in the wrong class of account. This can occur when an expense is treated as an asset or vice versa for example- rental of $1,000 was debited to Premises Account.
- This is a very serious error as it can greatly distort the accounting profit.
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| (D) COMPLETE REVERSALOF ENTRIES |
- An account that should be debited is credited and vice versa for example- a cheque of $2500 received from Mr A was debited to the account of Mr A and credited to the Bank Account.
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| (E) COMPENSATING ERRORS |
- Errors on one side of the ledger are compensated by errors of the same amount on the other side for example- the Purchases Account and Sales Account were both overcast by $2,300
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| (F) ERRORS OF ORIGINAL ENTRY |
- The original figure may be incorrectly entered although the correct double-entry principle has been observed using this incorrect figure for example credit sales of $9,800 to Mr A were recorded in the Sales Account and Mr A’s account as $8,900.
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This entry was posted on Thursday, October 25th, 2007 at 8:14 am and is filed under k. Trial Balance.
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