Bookkeeping
Topics in this category
Bank Reconciliation Books of Prime Entry Cash Book & Petty Cash Computerized Bookkeeping Control Accounts Correcting Errors Sales & Purchase Ledgers Trial Balance VAT Records
Bookkeeping

Trial Balance

25 question(s)

What is a trial balance?

Beginner
A trial balance is a list of all the ledger account balances at a point in time, with debit balances in one column and credit balances in another. Because of double entry, the total debits should equal the total credits. It's prepared to check arithmetical accuracy and as the starting point for the financial statements.
Trial Balance (extract):
  Account        Dr      Cr
  Sales                  50,000
  Purchases     30,000
  Debtors        8,000
  Totals must be equal.
Real-world example At period end the bookkeeper lists every account balance in a trial balance to confirm debits equal credits.

Common follow-ups: Why should the two columns be equal? | What is the trial balance used for next?

Control Accounts Correcting Errors Trial Balance

What is the purpose of a trial balance?

Beginner
Its purposes are: to check the arithmetical accuracy of the double-entry bookkeeping (equal debits and credits), to summarize all ledger balances in one place, and to provide the basis for preparing the income statement and balance sheet. It doesn't prove the books are entirely error-free, only that they balance.
Real-world example The trial balance is drawn up before the financial statements to confirm the ledger balances add up.

Common follow-ups: Does a balanced TB mean no errors? | What statements are built from it?

Correcting Errors Control Accounts Trial Balance

Which balances go on the debit side and which on the credit side of the trial balance?

Beginner
Debit balances: assets, expenses, and drawings. Credit balances: liabilities, capital, and income. So debtors, purchases, cash, and drawings are debits; creditors, sales, capital, and loans are credits. Placing each balance on its correct side is essential for the trial balance to balance.
Debits: assets, expenses, drawings
Credits: liabilities, capital, income
Real-world example Purchases and debtors sit in the debit column; sales and creditors sit in the credit column.

Common follow-ups: On which side is capital? | Where do drawings go?

Control Accounts Correcting Errors Trial Balance

What types of errors are NOT revealed by a trial balance?

Intermediate
Errors that don't affect the debit/credit equality aren't shown: error of omission (transaction left out entirely), error of commission (right amount, wrong account of same type), error of principle (wrong type of account), error of original entry (wrong amount in both entries), complete reversal of entries, compensating errors, and errors of duplication. The trial balance still balances despite these.
TB still balances with: omission, commission, principle,
original entry, reversal, compensating, duplication.
Real-world example A purchase posted to the wrong supplier (commission) doesn't unbalance the trial balance.

Common follow-ups: Name errors a TB won't catch. | Why do these still balance?

Correcting Errors Control Accounts Trial Balance

What types of errors ARE revealed by a trial balance?

Intermediate
Errors causing unequal debits and credits show up: a one-sided entry (posted to one account only), posting the same side twice, transposition in one figure, casting errors in a ledger account, an omitted balance, or a balance entered in the wrong column. These make the totals disagree, prompting investigation.
Real-world example Posting only the debit of a transaction and forgetting the credit makes the trial balance disagree.

Common follow-ups: Does a transposition in one entry unbalance the TB? | What is a one-sided error?

Correcting Errors Control Accounts Trial Balance

What is a suspense account and when is it opened?

Beginner
A suspense account is a temporary account opened to make the trial balance balance when the debits and credits disagree and the difference can't immediately be located. The difference is posted to the suspense account until the errors are found and corrected via journal entries, at which point the suspense account is cleared to zero.
TB debits exceed credits by 90:
  open Suspense with a 90 credit to balance,
  clear it as errors are found.
Real-world example A 90 difference is parked in a suspense account until the bookkeeper traces and fixes the underlying errors.

Common follow-ups: What clears the suspense account? | Why is it only temporary?

Correcting Errors Control Accounts Trial Balance

How is the trial balance used to prepare financial statements?

Intermediate
The trial balance balances are allocated to the financial statements: income and expenses to the income statement (to compute profit), and assets, liabilities, and capital to the balance sheet. Period-end adjustments (accruals, prepayments, depreciation, closing inventory, provisions) are then applied, often via an extended trial balance, to produce the final statements.
Real-world example The bookkeeper takes each trial balance figure to the income statement or balance sheet, then adds year-end adjustments.

Common follow-ups: What is an extended trial balance? | What adjustments follow the TB?

Correcting Errors Control Accounts Trial Balance

What is an extended trial balance (ETB)?

Advanced
An extended trial balance adds columns to the basic trial balance for adjustments (accruals, prepayments, depreciation, closing stock), and then splits the adjusted figures into income statement and balance sheet columns. It provides a worksheet to move from the ledger balances to the financial statements in a controlled, checkable way.
ETB columns: TB Dr/Cr | Adjustments Dr/Cr |
  Income Statement Dr/Cr | Balance Sheet Dr/Cr
Real-world example The accountant uses an extended trial balance to incorporate depreciation and accruals before drafting the accounts.

Common follow-ups: What columns does an ETB add? | How does it aid accuracy?

Correcting Errors Control Accounts Trial Balance

If a trial balance balances, does it mean the accounts are correct?

Beginner
No. A balanced trial balance only proves that total debits equal total credits (arithmetical accuracy). It does not detect errors that affect both sides equally—omissions, wrong-account postings, errors of principle, reversals, or compensating errors—so the accounts can still contain material mistakes despite balancing.
Real-world example Even with a balancing trial balance, a purchase wrongly recorded as an asset (error of principle) remains undetected.

Common follow-ups: What does a balanced TB actually prove? | Give an undetected error example.

Correcting Errors Control Accounts Trial Balance

How do you locate the difference when a trial balance does not balance?

Intermediate
Check the difference for clues: if divisible by 9, suspect a transposition; if it equals a round figure or a specific balance, look for an omitted or misplaced item; if it's twice a figure, a balance may be on the wrong side. Re-cast the totals, verify each balance is listed on the correct side, and re-check postings, using the control accounts to narrow the search.
Difference 90 (divisible by 9) -> likely a transposition,
e.g., 54 written as 45.
Real-world example A difference divisible by 9 leads the bookkeeper straight to a transposed figure in a ledger balance.

Common follow-ups: Why does divisibility by 9 suggest transposition? | What does a doubled figure suggest?

Correcting Errors Control Accounts Trial Balance