A trial balance lists the balances of all ledger accounts. Equal debit and credit totals show that the ledger is arithmetically accurate.
Errors a trial balance does not reveal
- Errors of omission (a transaction not recorded at all)
- Errors of principle (revenue treated as capital, or the reverse)
- Compensating errors
- Errors of recording a wrong amount in the original book
Kinds of errors
| Kind | Example |
|---|---|
| Omission | Credit purchase not recorded |
| Commission | Posted to Ram's account instead of Shyam's |
| Principle | Purchase of furniture debited to Purchases A/c |
| Compensating | One overcast on the debit side, another on the credit side by the same amount |
Suspense account
When the trial balance does not agree, the difference is put in a Suspense Account. One-sided errors are later rectified through it; two-sided errors are rectified with an ordinary journal entry.
Rectification in three steps
- Write what was done (the wrong entry).
- Write what should have been done (the correct entry).
- Pass the entry that turns step 1 into step 2.
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