Limitations Of Trial Balance (Part 4)

Part 1 describe what is a Trial Balance and its importance.
Part 2 on purposes of a Trial Balance
Part 3 showing a Worked Example on how/steps to prepare/extract a Trial Balance

This Part 4 looks at the limitations of a Trial Balance.


It is important for readers to understand that a Trial Balance that balances DOES not necessarily prove that all the transactions have been recorded or that the accounting process is error-free.

Numerous errors or mistakes can exist even though the trial balance totals are in agreement.

This can be categorized in two parts namely:

Errors that CANNOT BE REVEALED by the Trial Balance(Part1)

Errors that CAN BE REVEALED by the Trial Balance and (Part2)


The following are Errors that CANNOT be revealed by the Trial Balance:

(A) ERRORS OF OMISSION

• A transaction is totally omitted from the books so that there is no debit and credit entry of the transaction for example payment of $3,000 were not recorded.

(B) ERRORS OF COMMISSION

• An entry may be posted to the correct side of the ledger but to the wrong account for example- payment of $1,500 cash by customer Mr A is wrongly posted to the account of another customer Mr B.

© ERRORS OF PRINCIPLE

• An entry is made in the wrong class of account. This can occur when an expense is treated as an asset or vice versa for example- rental of $1,000 was debited to Premises Account.
  This is a very serious error as it can greatly distort the accounting profit.

(D) COMPLETE REVERSAL OF ENTRIES

• An account that should be debited is credited and vice versa for example- a cheque of $2500 received from Mr A was debited to the account of Mr A and credited to the Bank Account.

(E) COMPENSATING ERRORS

• Errors on one side of the ledger are compensated by errors of the same amount on the other side for example- the Purchases Account and Sales Account were both overcast by $2,300

(F) ERRORS OF ORIGINAL ENTRY

• The original figure may be incorrectly entered although the correct double-entry principle has been observed using this incorrect figure for example credit sales of $9,800 to Mr A were recorded in the Sales Account and Mr A’s account as $8,900.