Errors in the Trial Balance.—The manner of entering the small pencil footings of both sides of each account and also the account balances previous to taking the trial balance, was explained in an earlier chapter. This preliminary work should be done carefully so as to reduce errors to a minimum.
It is not purposed here to discuss all the kinds of errors that find their way into the accounting records. Errors are frequently made in the original analysis and classification of the transaction, which, as previously stated, result in an entirely incorrect showing of financial condition. Such errors do not affect the balance of the books and are not detected by the trial balance. Their detection is one phase of the professional auditor’s work. This discussion has been qualified by saying that if the work of original and secondary entry has been done correctly, then the ledger should prove. Some points in connection with errors which often occur in posting will be treated here.
The equality of the two totals of the trial balance proves that for every debit entry on the books there has been made an equal credit, or at any rate that the sum of all debit entries equals the sum of all credit entries; i.e., it proves only the mathematical correctness of the work.
It might happen that an item, though posted to the correct side of the ledger, has been entered in the wrong account. The trial balance would not detect an error of this kind. For example, John Doe’s account might be debited with a charge belonging to Richard Roe, both being customers. This of course would make the books show wrong balances in those particular accounts, but would not cause an incorrect showing in the total assets. However, more serious results may come from an error caused by posting to the wrong account.
According to the schedules shown earlier, all transactions bring about increases and decreases in the three main groups of accounts, viz., assets, liabilities, and proprietorship. A transaction resulting in an increase of assets may have its credit in any of the three classes—decrease of assets, increase of liabilities, or increase of proprietorship. A credit entry in any one of these would result in an exact offset to the debit and would therefore so far as that transaction was concerned, result in equal debits and credits in the trial balance; but were entry made to the wrong group of accounts, it would bring about absolutely false results. This would be the case if a proprietorship account were credited, resulting in an increased profit, when the credit should have been to the liability group with a resulting increase of the liabilities—two divergent results.
Thus, while the trial balance does not detect errors in posting to the wrong account, it has great value in that its equality is considered as good evidence of the correctness of the books. This is so because errors of the kind just referred to are not of so frequent occurrence as those involving only the mathematics of the work.
Suggestions for Locating Errors.—Where trial balance totals do not agree, it is certain that one or more errors have been made somewhere. The following suggestions may be useful in locating them:
1. If there is a difference of 1 in any column, i.e., .01, .10, 1.00, 10.00, etc., the error very likely results from wrong addition. Check additions of the trial balance and if the error is not located there, those of the ledger accounts must be checked as well.
2. If the difference between the two trial balance totals is an even number, divide this difference by two and look through the trial balance for an item of that amount but entered as a debit instead of a credit or vice versa. The amount of the error must be divided by two because the placing of a given item in the wrong column would result in a difference of twice this amount in the totals of the trial balance. If the error is not located in the trial balance, it may be necessary to look through the ledger accounts because the wrong placing may have occurred there.
In checking through the ledger for an error of this kind, some aid is afforded by the fact that all postings from even pages in the cash book (i.e., the cash receipts) appear on the credit side of the ledger accounts, and all postings from the odd pages in the cash book appear on the debit side of the ledger accounts. If, therefore, in any of the credit reference columns in the ledger is seen a reference like “C 13” or “C 29,” or in any of the debit reference columns an index like “C 40” or “C 58,” it is probable that the error is due to posting to the wrong side.