The trial balance is a summary-level of listing of the debit or credit account total in each account. You normally use the initial, or unadjusted, trial balance for two reasons:
- To ensure that the total of all debits equals the total of all credits, thereby ensuring that all of the underlying transactions are in balance.
- To use as the starting point for adjusting entries that will bring the information in the trial balance into compliance with an accounting framework, such as Generally Accepted Accounting Principles or International Financial Reporting Standards.
This unadjusted trial balance may contain a number of errors, only a few of which are easy to spot in the trial balance report format. Here are the more common errors, with suggestions on how to find them:
- Entries made twice. If an entry is made twice, the trial balance will still be in balance, so that is not a good document for finding it. Instead, for an ongoing transaction, you may have to wait for the issue to resolve itself. For example, a duplicate invoice to a customer will be rejected by the customer, while a duplicate invoice from a supplier will (hopefully) be spotted during the invoice approval process.
- Entries not made at all. Impossible to find on the trial balance, since it is not there (!). Your best bet is to maintain a checklist of standard entries, and verify that all of them have been made.
- Entries to the wrong account. This may be apparent with a quick glance at the trial balance, since an account that previously had no balance at all now has one. Otherwise, the best form of correction is preventive - use standard journal entry templates for all recurring entries.
- Reversed entries. An entry for a debit may be mistakenly recorded as a credit, and vice versa. This issue may be visible on the trial balance, especially if the entry is large enough to change the sign of an ending balance to the reverse of its usual sign.
- Transposed numbers. The digits in a number may have been switched. This is easy to find, since the underlying entry is unbalanced, and so should not have been accepted by the accounting software. If a manual system is being used, journal entry totals must compared to the totals in the trial balance. This issue relates to the following one.
- Unbalanced entries. This is listed last, since it is impossible in a computerized environment, where entries must be balanced or the system will not accept them. If you are using a manual system, then the issue will be apparent in the column totals of the trial balance. However, locating the exact entry is vastly more difficult, and will call for a detailed review of every entry, or at least of the totals in every subsidiary journal that rolls into the general ledger.
Whenever you correct an error, be sure to use a clearly labeled journal entry with supporting documentation, so that someone else can trace through your work at a later date.