Trial Balance and Correction of Errors
A trial balance checks that total debits equal total credits — but a balanced trial balance does NOT prove the accounts are error-free, since some errors don’t disturb the balance at all.
1. The Trial Balance
A trial balance lists every ledger account balance, split into debit and credit columns. If double entry has been applied correctly, the two column totals will be equal. Its main limitation: it only checks arithmetic accuracy, not that the correct accounts were used.
2. Errors NOT Revealed by a Trial Balance
| Error type | Description |
|---|---|
| Commission | Correct amount and side, but posted to the wrong account of the correct type (e.g. wrong customer’s account) |
| Compensating | Two unrelated errors happen to cancel each other out |
| Complete reversal | Correct amount and accounts, but debit and credit are swapped |
| Omission | A transaction is left out of the records entirely |
| Original entry | The wrong amount is entered on both sides (correct accounts, correct sides, wrong figure — the same wrong figure both times) |
| Principle | Posted to the wrong class/type of account (e.g. capital expenditure treated as revenue expenditure) |
To fix a complete reversal, you must both cancel the wrong entry AND post the correct one — so the correcting entry is double the original amount: Debit J. Smith $600, Credit Sales $600.
3. Suspense Accounts
When an error DOES cause the trial balance to be unequal, a suspense account is opened temporarily with the difference, so the trial balance can balance while the error is investigated. Once found, a journal entry corrects the error and clears the suspense account.
Debit Purchases $50, Credit Suspense $50 — this both records the missing debit entry and clears the suspense account to zero.
- Assuming a balanced trial balance means the accounts are completely correct — six specific error types can still be present.
- Forgetting that correcting a reversal error requires DOUBLE the original amount, not the original amount again.
- Opening a suspense account for an error that doesn’t actually cause an imbalance (like the six error types above) — suspense accounts are only needed when the trial balance fails to balance.
Key Vocabulary Recap
Syllabus Reference
Practice questions
Trial Balance and Correction of Errors — Practice
Covers: the trial balance, the six error types not revealed by it, and suspense accounts. 10 questions.
State the purpose of a trial balance.
Explain one limitation of a trial balance.
Name and describe the error where a transaction is posted to the wrong account of the correct type (e.g. the wrong customer’s account).
Name and describe the error where a transaction is left out of the accounting records entirely.
Name and describe the error where capital expenditure is treated as revenue expenditure.
Name and describe the error where two unrelated errors happen to cancel each other out in the trial balance.
Goods sold for $250 to R. Khan were recorded as Debit Sales $250, Credit R. Khan $250 (a complete reversal). Give the journal entry to correct this.
Explain when a suspense account is opened.
A trial balance’s credit column totals $80 more than its debit column. A suspense account is opened. It is later found that a $80 discount allowed was never posted to the discount allowed account. Give the correcting journal entry.
Explain why correcting an error can affect the profit for the year reported in the financial statements.
Worked solutions
Show worked solutions
Trial Balance and Correction of Errors — Practice: Solutions
Purpose of a trial balance.
One limitation of a trial balance.
Wrong account of correct type.
Transaction left out entirely.
Capital expenditure treated as revenue.
Two unrelated errors cancel out.
Correct a reversal: Sales$250/R.Khan$250 reversed.
When is a suspense account opened?
Credit column $80 more; discount allowed $80 not posted.
Why can error correction affect reported profit?
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