One of the main objectives of preparing trial balance is that it helps in searching of errors committed by an accountant while posting entries in the books of accounts. Thus. a mismatched trial balance clearly indicates that one or more mistakes have been made.
This early detection of errors makes the process of preparing the financial statements less time consuming and comparatively easier.
The following steps are required to be taken by an accountant in order to locate the errors present in the trial balance.
- Recast both the total amounts of debit side and credit side of the trial balance.
- Recheck the account heads along with the amounts appearing in front of them with that of original ledger accounts. This will bring into light any omission that has occurred.
- Another technique that could help in detecting errors is by comparing current year trial balance with that of previous year. It will highlight all the additions and deletions of accounts and any huge amount variation in similar heads.
- Recalculate the closing balances of each individual account in the ledger. This will rule out the possibility of wrong calculation.
- Once all the above steps are carried out and the root cause of error has still not been found, one should check that the entries posted in the ledger from the journal are accurate
- A mathematical technique that can be used for searching of errors in trial balance is to take the divisibility test of 2. If the difference between the two sides of trial balance (i.e., debit side and credit side) is divisible by 2, there are chances that an amount equal to one-half of the difference between the two columns may have been posted to the wrong side of another ledger account.
For example, the total of the debit side column of the trial balance exceeds the credit side column by Rs. 5,000 it may be possible that a credit item of Rs. 2,500 has been wrongly posted in the ledger as a debit item. - The next step is to check for complete or partial omission of entries.
For example, if there is a difference of Rs. 1,500, i.e. debit exceeds credit by Rs. 1,500 it may be because an entry which should have been posted on the credit side has been missed out. - Another step to locate errors is to carry out the “test of 9”. This checks if there is any mistake due to transposition of figures. If the difference of debit less credit side or vice versa is a multiple of 9 or divisible by 9, the mistake could be due to transposition of figures.
For example, if a debit amount of Rs. 459 is confused and posted as Rs. 954, the total of debit side in the trial balance will exceed the credit side by Rs.495 (i.e. 954 – 459 = 495).
The test of 9 can be used in such a case as the difference is divisible by 9. Similarly, this can also bring to light any mistake committed due to wrong placement of the decimal point.
Thus, the totals of both sides of the trial balance should tally in order to prove the accuracy of account books. However, if this is not the case there are a few steps that one can follow in order to search for errors that might have been committed.
Chapter 6 -Trial Balance and Rectification of Errors