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.
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
- 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.
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