Errors of trial balance

Trial Balance

The statements prepared with the help of ledger balances, at the end of financial year (or at any other date) to find out whether debit total agrees with credit total, is called trial balance.

Errors of Trial Balance

Normally four types of errors are not revealed by trial balance, so two sides of trial will although agree, even then our accounts may not be free from errors.

Such errors are

(1) Errors of omission : If a transaction is not recorded in the book of original entry then both debit and credit effects of the transaction are omitted and trial balance shall not be affected, e.g. goods sold to John worth rs 1,000. The entry is not recorded bin the books at all, it means neither John's account is debited nor sales Account is credited. As both sides have been affected by equal amount, so the trial balance shall agree.

(2) Errors of Commission : These errors are the result of carelessness of accounting staff and in some of the cases such errors do not affect the total of trial balance, e,g. Wrong recording in the books of original entry or posting to wrong accounts with correct amount with correct side  e,g. goods sold for cash worth rs 1,000 but cash account debited with rs 100 and sales account credited with identical account.

(3) Compensating errors : Such errors neutralise the effect of the errors committed earlier. When one errors is committed which effect the total of trial balance but in the mean time another error of opposite effect is committed which neutralises the effect of earlier error, e,g. forgetting to post rs 500 on the debit side of a certain account  may be compensated by under posting of RS 500 on the credit side of some other account or by overposting of  RS 500 on the debit side of some other account.

(4)  Errors of Principles : Whenever any income or expenditure is not properly allocated between capital and revenue, the mistake so made is called a mistake of principles, e,g. if furniture purchased is debited to purchase account, building sold is credited to sales account, wages paid for installation of machinery is debited to wages account, then the error of principles is committed. The trial balance shall remain unaffected by such errors.