Trial Balance

So in the last post we talked about balancing of ledger accounts, what you'll come across frequently in Cambridge Accounting is the Trial Balance. This is simply a list of all your credit and debit balances in the business. Since you have been following the duality system of accounting where each transaction has 2 entries into the ledger system, total debits should equal total credits; hence the trial balance.

Drawing one up is simple enough. Have a look below:







Life could not get any simpler right? What happens if it the trial balance does not balance though? What are the causes of this?

1. error of addition both in the trial balance and also in the balancing
   
2. not using double entry
3. not all balances have been included
4. incorrect entry of balance onto the trial balance

Unfortunately there are also errors that will not affect your trial balance but are still errors nonetheless.

1. Error of Omission- when an entry is completely omitted from the books, given that everything before was correct the trial balance should balance
2. Error of Commission- when an entry is entered correctly in terms of double entry, but the person or group that it has been entered into is wrong. e.g. A Smith $200 has been entered under J Smith $200
3. Error of Principle- numbers are correct, however how a certain transaction is treated is incorrect. e.g. something that should have been expensed has been capitalised (treated as an asset)
4. Complete Reversal of Entries- reversing the debit and credit entries, still balances but is incorrect
5. Compensating Errors- errors are both incorrect by the same amount e.g. both over by $100, will still balance but figures will be incorrect
6. Errors of Original Entry- An error made when going from the initial invoice or document to the ledger accounts.
   

While this is not a big topic, you will still need to know it. Usually is placed at the end of questions as mark fillers or in multi-choice.