Comprehensive Overview of Trial Balance Advantages and Limitations in Accounting

Comprehensive Overview of Trial Balance Advantages and Limitations in Accounting

• 1.
  ADVANTAGE OF THETRIAL BALANCE ADVANTAGE OF THE TRIAL BALANCE Trial balance has the following advantages. Proof of accuracy: When the debit and credit sides of the trial balance are equal, it gives an assurance that all the debit and credit entries have been posted correctly and all the ledger balances have been correctly balanced. Preparation of Financial Statements: The income statement and balance sheet can be prepared from the trial balance.
• 2.
  LIMITATIONS OF THETRIAL BALANCE Detection of Errors: When the debit and credit sides of the trial balance are not equal, it means that there is some error in the journal or in ledger. Error of Principles: The error where some accounting principle is ignored, for example, proper distinction between capital and revenue expense is not made. Error of Omission: When any entry is omitted from recording in the journal.
• 3.
  Cont… Error of Commission:When any error is made in preparing the original documents, vouchers or while entering into journal. For example, cash received from Ali is credited to Ahmad. Compensatory Error: When the error of one side is compensated with the error of similar amount on the other side. Error of Posting: When the posting is made to wrong account in ledger. For example, posting on the wrong side of the ledger, posting on the wrong side of the trial balance.
• 4.
  Example