The errors in a trial balance can be located by taking the following steps.
First, verify the totals of both columns of the trial balance.
Second, if errors are not located, divide the difference carrying disagreement in the trial balance by 9. Through this procedure, you can locate two types of errors: transposition errors and slide errors.
Transposition errors occur if the wrong amount is posted in the trial balance. For example, if the purchases account has a balance of $8,350 but has been wrongly posted in the trial balance as $8,630, this is known as a transposition error.
Sliding errors occur when a decimal is mistakenly recorded. For example, if $3,560 is written down as $35.60, this is an instance of a sliding error.
Third, if there are still no errors, then divide the difference by 2. If the amount of debit balance is entered in credit balance or vice versa, it will show a difference of two times the amount of difference in the trial balance.
Fourth, if there are opening balance amounts from the previous year, verify them.
Fifth, check if an amount shows a balance that is equal to the difference in the trial balance.
Sixth, verify that all the balances are correctly posted in the trial balance.
Seventh, apply the following last steps:
Different types of errors are highlighted by a trial balance.
First of all, if a transaction is correctly entered in the journal but one of the accounts is not posted to the ledger, the trial balance will show disagreement.
For example, if goods sold to A of $1,000 are recorded in the journal but not posted to the debit side of A's account, the debit side of trial balance will be $1,000 short.
Another type of error is that if the wrong amount is entered in the ledger from the journal, the trial balance will not agree.
For example, if goods purchased from B of $2,000 are recorded on the credit of B's account as $200, the credit side of the trial balance will be $1,800 short.
Examples of other errors highlighted by a trial balance are:
It is important to recognize that some errors are not highlighted by a trial balance.
Error 1: If a transaction is not recorded in the journal, then it will not influence the trial balance. This is known as an error of commission.
For example, if goods sold to John amounting to $2,000 are not recorded in the journal, this will not make the trial balance disagree.
Error 2: Another type of error is that the trial balance will not show an error when accounting principles have been incorrectly applied (i.e., errors of principle).
For example, if carriage paid on furniture purchased is debited to the carriage account, this will not be shown by a trial balance.
Error 3: If there are group of errors and their total effect is not reflected from the trial balance (i.e., compensating errors), these will not be highlighted by a trial balance.
For example, if the rent account is $500 overcast, it may be compensated by an extra increase of $500 in the interest received account.
Error 4: When recording transactions in the journal, if a wrong amount is passed, it will not disturb the trial balance. For example, if the amount of rent paid is entered in the journal as $2,000 instead of $3,000, the trial balance will not show disagreement.
Error 5: If a transaction is recorded twice in the journal, this will not affect the agreement of the trial balance. For example, if goods sold to John worth $5,000 are entered twice in the journal, this will not disrupt the trial balance.
Error 6: The trial balance will not be disturbed by errors where transactions are correctly entered in the journal but the wrong account is posted in the entry.
For example, if goods are purchased from Harry amounting to $500, which are wrongly replaced by Harry, it will not disturb the trial balance.
Trial Balance shows the debits and credits, while a ledger is used for recording details of individual transactions.
Errors that cause understating or overestimating of the total. If a Trial Balance gives an incorrect picture, it means that errors exist somewhere in the system. An error of commission will lead to understating or overestimating of the total. The entries recorded in the journal and its posting in the ledger should be examined for such errors . It must be noted here that there might be transactions that are not recorded or posted at all. In such a scenario, the Trial Balance will always agree.
An error of omission means that transactions have been omitted or not recorded in the journal. If this is the case, it will affect the Trial Balance but not show up in terms of an error on its right side. Consider an example where goods worth $5,000 are sold to john but the transaction is not recorded in the journal at all. This would not impact the Trial Balance but it will be wrong.
When two opposite errors compensate each other, and their net effect is nearly zero, they are in a sense neutralized. For example: if rent expense is $500 overcast and interest received is also $500 overcast, the net effect of both is nearly zero. In such a case, they are said to be compensating errors.
Recording a transaction twice means that the value is passed twice in the journal for one and the same transaction. For example, if goods are purchased amounting to $1,000 and passed twice in the journal, it will do no harm to the Trial Balance.
About the Author
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own.
Content sponsored by 11 Financial LLC. 11 Financial is a registered investment adviser located in Lufkin, Texas. 11 Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. 11 Financial’s website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.
For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. A copy of 11 Financial’s current written disclosure statement discussing 11 Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from 11 Financial upon written request.
11 Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to 11 Financial’s website or incorporated herein, and takes no responsibility therefor. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
© 2024 Finance Strategists. All rights reserved.
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.
