Trial Balance and correction of errors

DIFFERENCES BETWEEN TRIAL BALANCE AND BALANCE SHEET

1. Trial balance shows list of ledger balances WHILE Balance Sheet is a statement showing assets and liabilities

2. Trial balance is prepared to prove the arithmetical accuracy of the ledger accounts WHILE BALANCE SHEET is prepared to show the financial position  of a business at a point in time

3. In the trial balance , items are classified into debit and credit WHILE in the balance sheet items are classified into assets and liabilities

4. Trial balance preparation is at the discretion of the business WHILE balance sheet preparation and presentation is a legal obligation in any business

5. Trial balance is used for the preparation of final accounts for which the balance sheet is a part. WHILE BALANCE SHEET is prepared with the balances left after the preparation of the trading profit and loss account

PURPOSE OF TRIAL BALANCE

1. Provide a comprehensive lists of all accounts therefore it saves time

2. To show the arithmetical accuracy of the entries in the ledgers

3. Provide data for the preparation of Trading , profit and loss and balance sheet

RULES OF TRIAL BALANCE

  In preparing the trial balance ,the rules below must be followed by the students.

BALANCING OF LEDGER ACCOUNTS

Before the preparation of trial balance ,all ledgers should be posted ,added and balanced off. In balancing the accounts, the following procedures should be followed.

Procedures for balancing the ledgers

1 post all debit items

2. Add all the items on the debit side

3. Post all credit items.

4.Add all the items on the credit sides

5. Compare the two totals.

6. If the debit side is greater ,insert the difference on the credit side.

7. If the credit side is greater , insert the difference on the debit side

EVALUATION:

1.State four differences between a balance sheet and a trial balance

2. State three functions of a trial balance

ASSIGNMENT: Take assignment from simplified and amplified book-keeping and accounting revision question 3 page 101

TRIAL BALANCE ERRORS OR UNDISCLOSED ERRORS

1. Errors of original entry: This error occurs when a wrong amount is entered on the debit and credit sides e.g sales of #95 to Ayo entered in the accounts as #59.

2. Error of omission; Error of omission occurs when a transaction is totally omitted from the debit and credit sides of the account

3. Error of commission: This error occurs when a transaction is entered in a wrong person’s account e.g purchase of goods #70 from Bada entered in Dada ‘s account

4 Error of principle: Error of principle occurs when transactions are entered in a wrong class of accounts

  5. Compensating Errors: This occurs when errors of the same amount are posted to the two sides of the of the ledger, therefore they cancelled out each other.

 6. Complete reversal of entry: This occurs when the double entry for a transaction is reversed. The account to be debited has been credited and the account that ought to be credited is debited

ERRORS THAT WILL AFFECT THE AGREEMENT OF THE TRIAL BALANCE

The following errors will affect the totals of the trial balance, hence they will be adjusted by means of entry in the suspense account.

1. One sided omission

2. Misposting of figures to the account

3. Errors in transfer of totals of subsidiary book

4. Two entries on the same side

5. Undercasting and overcasting of balances

PROCESSES INVOLVED IN CORRECTION OF ERRORS

1.Identification of error

2. Illustration of errors in the ledgers

3. correction

4 posting to the journal

5 .preparation of suspense account

ERRORS EXPLAINED

1. One sided omission:this occurs when there is an omission in one of the two accounts e.g payment of rent #170 cash was entered in the cash book but not in the rent account

2.  MISPOSTING OF FIGURES TO THE ACCOUNT:This error occurs when an item was recorded on the debit side with figures different from the figures recorded on the credit side . e.g Sales of goods #209 was credited in sales account and debited in cash account as #902

3. ERRORS IN TRANSFER OF TOTALS OF OF SUBSIDIARY BOOKS:Errors can occur when transferring the totals of the subsidiary books to the ledgers e.g A sales of goods to Okoro had been correctly recorded in the sales day book as #240 but had been debited to his account as #24

4. TWO ENTRIES ON THE SAME SIDE: Two entries can be made on one side of the account and one entry on other account e.g sales of goods #300 cash was debited twice to the cash account

5.TRIAL BALANCE ERRORS:The trial balance error can occur in the trial balance as follows

a. Trial balance can be incorrectly totaled.

b. An item can omitted from the trial balance.e.g.The petty cash book balance of #100 was omitted from the trial balance.

TRADING PROFIT AND LOSS ACCOUNT AND BALANCE SHEET(FINAL ACCOUNT)

The final account is a statement that details the financial transactions of an organization covering a period of time, usually a year.

The final accounts of a sole trader comprise the following

1. Trading account

2. Profit and loss account

3. balance sheet