ERRORS THE TRIAL BALANCE CAN DISCLOSE Lesson Note
This SS2 ACCOUNTING lesson note covers ERRORS THE TRIAL BALANCE CAN DISCLOSE for First Term, Week 2.
Learning Objectives
- By the end of the lesson, students should be able to:
- State the errors that a trial balance will disclose.
- Explain how errors disclosed by the trial balance can be corrected.
- Correct errors using proper journal entries.
- Explain the use of a suspense account in correcting errors.
Lesson Note
A. INTRODUCTION
A trial balance is prepared to check whether the total debit balances are equal to the total credit balances.
When some accounting errors are made, the trial balance will not agree. Such errors are called errors disclosed by the trial balance.
B. ERRORS DISCLOSED BY THE TRIAL BALANCE
The following errors can cause the trial balance not to agree:
1. Error of Partial Omission
This occurs when only one side of a transaction is recorded.
Example: Goods bought for ₦10,000 are correctly credited to the supplier’s account but the purchases account is not debited.
The trial balance will show a difference of ₦10,000.
2. Wrong Amount Posted to One Account
This occurs when the correct amount is entered in one account but a different amount is entered in the other account.
Example: A cash sale of ₦8,000 is debited to Cash Account with ₦8,000 but Sales Account is credited with ₦800.
The trial balance will not agree.
3. Wrong Addition of an Account
This occurs when an account is added incorrectly.
Example: The debit side of the Purchases Account is added as ₦40,000 instead of ₦45,000.
This creates a difference of ₦5,000 in the trial balance.
4. Wrong Balancing of an Account
This happens when an account is balanced incorrectly.
Example: If the correct balance of an account is ₦15,000 but it is calculated as ₦12,000, the trial balance will be affected.
5. Posting an Amount to One Side Only
This occurs when an amount that should be posted to both debit and credit sides is posted to only one side.
Example: A payment of ₦6,000 is credited to the Cash Account but is not debited to the expense account.
6. Posting a Debit Entry as a Credit Entry
This occurs when an amount that should be posted on the debit side is posted on the credit side.
7. Posting a Credit Entry as a Debit Entry
This is the opposite of the above. An amount that should be posted on the credit side is posted on the debit side.
C. CORRECTION OF ERRORS
Correction of errors means making the necessary accounting entries to remove mistakes from the accounting records.
Errors are usually corrected through journal entries.
JOURNAL ENTRY EXAMPLES
Example 1: Rent wrongly credited to Rent Account
Rent paid ₦20,000 was wrongly credited to the Rent Account instead of being debited.
Correction:
Rent Account — Debit ₦40,000
Cash Account — Credit ₦40,000
Explanation: Since Rent was wrongly credited by ₦20,000, it must first be cancelled with a debit of ₦20,000 and then receive the correct debit of ₦20,000. Therefore, the correcting debit is ₦40,000.
Example 2: Purchases omitted from one side
Goods bought for ₦15,000 were credited to the supplier’s account but were not debited to Purchases Account.
Correction:
Purchases Account — Debit ₦15,000
Suspense Account — Credit ₦15,000
The suspense account is used because the credit entry has already been made and only the missing debit needs to be corrected.
D. SUSPENSE ACCOUNT
A suspense account is a temporary account used to record the difference in a trial balance when the cause of the difference has not yet been found.
For example, if:
Total Debits = ₦100,000
Total Credits = ₦95,000
The difference is:
₦100,000 − ₦95,000 = ₦5,000
The ₦5,000 may be placed in a suspense account temporarily.
When the errors are discovered, the suspense account is used to complete the correction.
Example of Suspense Account Correction
Suppose ₦3,000 paid for electricity was entered in the Cash Account but was not posted to Electricity Account.
The correction will be:
Electricity Account — Dr ₦3,000
Suspense Account — Cr ₦3,000
After all the errors causing the difference have been corrected, the suspense account should normally have a nil balance.
E. IMPORTANT DIFFERENCE
Errors disclosed by the trial balance cause the two sides of the trial balance to be unequal.
Errors not disclosed by the trial balance do not cause the two sides to disagree.
SUMMARY
A trial balance can disclose errors that affect only one side of an accounting entry or cause unequal debit and credit totals.
Examples include:
Partial omission
Wrong amount posted to one account
Wrong addition of an account
Wrong balancing of an account
Posting to one side only
Posting debit as credit
Posting credit as debit
These errors can be corrected through journal entries. A suspense account may be used temporarily when the trial balance does not agree and the cause of the difference has not yet been identified.
Evaluation
OBJECTIVE QUESTIONS
1. A trial balance is mainly prepared to check the equality of ______. A. assets and liabilities B. debit and credit balances C. sales and purchases D. cash and bank
2. Which of the following errors can be disclosed by a trial balance? A. Complete omission B. Error of principle C. Partial omission D. Error of commission
3. An error where only one side of a transaction is recorded is called ______. A. partial omission B. complete omission C. error of principle D. compensating error
4. A suspense account is a ______ account. A. permanent B. temporary C. personal D. capital
5. If the debit side of a trial balance is greater than the credit side, the difference may be placed in the ______. A. capital account B. cash account C. suspense account D. purchases account
6. Wrong addition of an account can cause the trial balance to ______. A. agree B. disagree C. disappear D. balance automatically
7. An error where an amount is posted to only one side of the ledger will usually make the trial balance ______. A. agree B. disagree C. increase automatically D. remain unchanged
8. The normal way of correcting an accounting error is through a ______ entry. A. journal B. sales C. cash D. purchase
9. The suspense account should normally have a ______ balance after all relevant errors have been corrected. A. large B. negative C. nil D. permanent
10. Which of the following is NOT normally disclosed by a trial balance? A. Partial omission B. Wrong addition C. Complete omission D. Posting to one side only
Theory Questions
1a. What is an error disclosed by a trial balance?
1b. State five errors that can be disclosed by a trial balance.
2a. Explain partial omission with an example.
2b. What is a suspense account?
2c. Correct this error using a journal entry: Goods bought for ₦10,000 were credited to the supplier’s account but were not recorded in the Purchases Account.