4.4 Preparing a trial balance

Trial balance

A list of all the ledger accounts with their balances, A statement to test the accuracy of total debits and credits after transactions have been recorded and posted

Uses of Trial balance

A proof of accuracy at face value, checks mathematical accuracy of debit and credit balance, if equal it serves a basis for preparing financial statements, if unequal, it may be used in locating errors

Limitations

Not a proof of accuracy because there are errors that will still give an equal trial balance

• If the trial balance doesn’t agree, the trial balance can’t locate the actual error

• Takes time to prepare, the financial statements can be prepared directly from the balances of the ledger accounts

Errors that cause unequal Trial Balance

Addition errors

• Only the debit side is recorded OR only the credit side is recorded

• Double recording on the same side

• Not the same amount of debit and credit

Errors that cause equal Trial Balance

Not recording a journal entry (error of omission)

• Double recording a journal entry

• Recording the correct amount but in a different debit account or a different credit account

• Recording the incorrect amount on the debit and credit side

Finding Trial Balance errors

1. Re-check the account balance

2. Re-add the total debit and the total credit

3. Re-check if each debit and each credit is recorded properly