Steps to locate errors of a trial balance
The errors of trial balance can be located through taking following steps.
- Verify the totals of both columns of trial balance.
- If the errors are not located, then divide the difference carrying disagreement in trial balance by 9, through this procedure two types of errors can be located, which are transposition errors and slide errors. Transposition error will occur if the wrong amount is posted in trial balance e.g. if purchases account has a balance of $8,350 but it has been wrongly posted in trial balance as $8,630. Sliding error will occur if a mistake of decimal is committed e.g. $3,560 is written as $35.60
- If the errors are still not highlighted then divide the difference by 2. If the amount of debit balance is entered in credit balance or amount of a credit balance is entered in debit balance, it will show a difference which will be twice time of the amount of difference shown by trial balance.
- If there were opening balance of amounts from previous year, verify them.
- Check if an amount shows a balance which is equal to the difference in trial balance.
- Verify that all the balances are correctly posted in trial balance.
- Recalculate the balance of each ledger account.
- If error remains undisclosed, verify all the postings in ledger from Journal.
- Verify all the entries made in Journal from the vouchers available.
- Repeat the above steps until the errors are detected.
Errors highlighted by trial balance
- If a transaction was correctly entered in Journal but one of the accounts is not posted to the ledger the trial balance will show disagreement e.g. If goods sold to A of $1,000 were recorded in Journal but has not been posted to the debit side of A’s account the debit side of trial balance will be $1,000 short.
- If wrong amount is entered in the ledger from Journal the trial balance will not agree e.g. If goods purchased from B of $2,000, are recorded on the credit of B’s account as $200, the credit side of trial balance will be $1,800 short.
- If balance of an amount is wrongly calculated and posted, trial balance will not show agreement.
- If the balance of any account is not recorded at all in trial balance, it will not agree.
- The trial balance will not agree if both sides of it are wrongly totaled.
Errors not highlighted by trial balance
- If a transaction is not recorded in the Journal then trial balance will not be affected by it. (Errors of commission) e.g. If goods sold to John of $2,000 are not recorded in Journal at all, this will not make the trial balance disagree.
- Trail balance cannot show an error if there is incorrect application of any accounting principle (Errors of principle) e.g. carriage paid on furniture purchased debited to carriage etc.
- If there are group of errors and their total effect is not reflected from the trial balance (compensating errors) e.g. If rent account is $500 overcast, it may be compensated by extra increase of $500 in interest received account.
- While recording transactions in Journal, if a wrong amount is passed, it will again not disturb the trial balance e.g. if the amount of Rent paid is entered in Journal as $2,000 instead of $3,000, the trial balance will not show disagreement.
- If a transaction is recorded twice in Journal this will not affect the agreement of trial balance e.g. if goods sold to John worth $5,000 are entered twice in Journal it will not disturb the mathematical accuracy of trial balance.
- The trial balance will also not be disturbed by an error in which a transaction is correctly
entered in Journal but a wrong account is posted in the entry e.g. if goods are purchased
from Harry of $500 are wrongly replaced by Harry, it will not disturb the trial balance.