Locating the Source of Trial Balance Errors
If the trial balance report that you’ve prepared for your business isn’t correct — the debits don’t equal the credits — you need to locate the source of the error. When you need to find errors after completing a trial balance that fails, follow these four basic steps to identify and fix the problem:
Check your math.
Keep your fingers crossed, and add up your columns again to be sure the error isn’t just one of addition. That’s the simplest kind of error to find and fix. Correct the addition mistake and re-total your columns.
Compare your balances.
Double-check the balances on the trial balance worksheet by comparing them to the totals from your journals and your General Ledger. Be sure you didn’t make an error when transferring the account balances to the trial balance.
Correcting this type of problem isn’t very difficult or time-consuming. Simply correct the incorrect balances, and add up the trial balance columns again.
Check your journal summaries.
Double-check the math in all your journal summaries, making sure that all totals are correct and that any totals you posted to the General Ledger are correct. Running this kind of a check is somewhat time-consuming, but it’s still better than rechecking all your transactions.
If you do find errors in your journal summaries, correct them, reenter the totals correctly, change the numbers on the trial balance worksheet to match your corrected totals, and retest your trial balance.
Check your journal and General Ledger entries.
Unfortunately, if Steps 1, 2, and 3 fail to fix your problem, all that’s left is to go back and check your actual transaction entries. The process can be time-consuming, but the information in your books isn’t useful until your debits equal your credits.
If this step is your last resort, scan through your entries looking specifically for ones that appear questionable. If you see an entry for office supplies that’s much larger or smaller than you normally expect, check the original source material for that entry to be sure it’s correct.
If you carefully proved out the Accounts Payable and Accounts Receivable journals, you can concentrate your efforts on accounts with separate journals. After you find and correct the error or errors, run another trial balance. If things still don’t match up, repeat the steps listed here until your debits and credits equal out.
You can always go back and correct the books and do another trial balance before you prepare the financial reports. Don’t close the books for the accounting period until the financial reports are completed and accepted.
Accounting Glossary
accounting equation
The equation Assets = Liabilities + Equity, which demonstrates the two-sided nature of accounting and is useful for explaining the concept of double-entry accounting (or double-entry bookkeeping).
Accounting Glossary
accounting period
The time period for which financial information is being tracked in a business, such as monthly, quarterly, or annually.
Accounting Glossary
accounts receivable
An account that records the amounts that customers owe to a business.
Accounting Glossary
adjusting entry
A correction made to a bookkeeping account that adjusts for accounting errors or other necessary changes at the end of the accounting period.
Accounting Glossary
cash flows
Used to describe the source or sources of cash or how cash is used.
Accounting Glossary
Chart of Accounts
A list of all the accounts used by a business, including what types of transactions go into each account.
Accounting Glossary
debit
An accounting entry that increases an asset or expense account, and decreases a liability or income account.
Accounting Glossary
dividends
A portion of a company’s profits paid by share of common stock on a quarterly or annual basis.
Accounting Glossary
FASB
Financial Accounting Standards Board. FASB is the highest-ranking authority in the private (non-government) sector of the U.S. for making pronouncements on GAAP and for keeping accounting standards up-to-date.
Accounting Glossary
Federal Unemployment Tax
In the U.S., the fund that used to be known simply as Unemployment. Employers contribute to the fund, and states also collect taxes to fill their unemployment fund reserves. (The acronym FUTA means Federal Unemployment Tax Act.)
Accounting Glossary
fidelity bonds
A type of insurance — typically carried by employers for their employees — that helps guard against theft and reduce the risk of loss.
Accounting Glossary
FIFO
First-in, first-out. A method for costs of goods sold in which a business charges out product costs to cost of goods sold expense in the chronological order in which the goods were acquired.
Accounting Glossary
fungible
Describes a product that is interchangeable and virtually indistinguishable from another product.
Accounting Glossary
General Ledger
A summary of all of a business’s accounts and transactions.
Accounting Glossary
IASB
International Accounting Standards Board. The IASB (based in London) is the main authoritative accounting standards setter outside the U.S.
Accounting Glossary
Journals
The location in which bookkeepers keep records (in chronological order) of daily company transactions.
Accounting Glossary
LIFO
Last-in, first-out. A method for costs of goods sold that selects the last item you purchased first, and then works backward until you have the total cost for the total number of units sold during the period.
Accounting Glossary
LLP
Limited liability partnership. A legal structure that state laws offer to qualified professionals in which all the partners have limited liability.
Accounting Glossary
PC
Professional corporation. A legal structure that state laws offer to qualified professionals who otherwise would have to operate as an unlimited partnership liability.
Accounting Glossary
petty cash
A cash account that businesses keep on hand for unexpected expenses.
Accounting Glossary
revenue
Monies that are collected in the process of selling a company’s goods and services.
Accounting Glossary
salvage value
The amount that an asset is worth after it has been fully depreciated.
Accounting Glossary
statement of cash flows
A financial statement that summarizes a business’s cash inflows and outflows during an accounting period.
Accounting Glossary
transactions
Economic exchanges between a business or other entity and the parties with which the entity interacts and makes deals.
Accounting Glossary
worker’s compensation insurance
A type of insurance carried by employers that covers its employees in case they are injured on the job.
