The Trial Balance And Correction Of Errors Flashcards
How is a trial balance created?
By taking the balance of each account in the general ledger
What errors are not disclosed by the trial balance?
- Error of omission
- error of commission
- error of principal
- error of original entry
- reversal of entries
- compensating error
What errors are disclosed by the trial balance?
- Calculation errors in ledger accounts and books of prime entry
- Single entry transactions
- recording two debits or two credits for a transaction
- recording different amounts for the debit and credit entries
- errors in transferring balances to the trial balances
- Omission of a general ledger account in the trial balance
What happens when an error is found in the trial balance?
The amount of the error is placed in a suspense account as the errors are found journal entries are made which ‘clear out’ the suspense account
Define trial balance
The list of the balances of every account from the general ledger [including cashbook and petty cash book] distinguishing between those accounts which have debit and credit balances
Define error of omission
Financial transaction completely omitted from the accounting records
Define error of commission
Transaction entered to the wrong person’s account or between other accounts such as expenses or non-current assets
Define error of principle
Transaction entered in the wrong type of account
Define error of original entry
Wrong amount entered incorrectly in accounts
Define Reversal of entries
Debit and credit entries made on the wrong side of the accounts
Define compensating error
Where two errors cancel each other out
Define suspense account
An account is where the error amount shown by the initial trial balance pending further investigation
Define redrafted trial balance
Trial balance which has been amended following correction of errors
