Accounting – Trial Balance Errors

In the last post, you read about the errors which do not disrupt the totals of a trial balance. Also, we classified the errors into four segments.

http://faoblog.com/accounting-trial-balance-errors-2/

So how do we trace these mistakes? Let us look at these based on the four classifications:

Errors of Omission

  • This is a difficult category to catch, especially for expense accounts.
  • When you call for balance confirmations, from vendors, customers, or of cash from the group handling cash, some of these differences will be thrown out.

Errors of Commission

  • These are again identified based on corresponding differences
  • So, a purchase posted to an incorrect account, or an incorrect product account, can be traced by comparing the sales number for the product.
  • Unusual spikes / reduction in balances will also throw out the errors of commission
  • In manual accounting process, checking the postings and totals might help

Errors of principle

  • Unusually high balances in expense accounts indicate such errors
  • An analysis of Sundry creditors or current liabilities may through out some incorrect income based errors of principle. Sometimes, accountants / business owners resort to this specifically, to bring down the income levels.
  • A Tax deducted at Source is quite often booked as an expense, although it is a current asset
  • Stock in trade sometimes gets classified as a fixed asset and vice versa

Errors compensating

  • Again, like I mentioned for the first item, an analysis of the balances of various accounts can very likely throw out these differences.
  • Also, comparing the balances with the previous year numbers can indicate some unusual trends.

So you see, how analysis and review of the trial balance account values can help in identification of errors.

Do share this post if you like it.

——————————————————————

You want to understand how accounting translates into outsourcing?

Read our blog – http://faoblog.com/category/finance-and-outsourcing/

——————————————————————

Subscription and Guest Post:

You may subscribe to the blog from the subscription box on the opening page of the blog. We have enabled a button on the top of the first page, which will enable you share your posts. If you wish to write about any of the current streams, you can do it at http://faoblog.com/guest-post/. We will review your post and release it within 48 hours of your posting.