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Each business transactions are recorded using the double entry system. As a result, the total RM debited should be = the total RM credited. Thus, the accounting equation remains in balance. However, people do make mistakes. It is thus necessary to have some sort of check to ensure that no journalising or posting errors arise. Undetected errors would make the financial statements inaccurate, & may lead to inaccurate decision making. Therefore, before preparing the financial statements, there is a need to check for errors, i.e. by preparing a Trial Balance(TB).

It acts as a test of the equality of the debit & credit balances in the ledger, i.e. it checks the arithmetical accuracy of the double-entry rules used. It helps to localise errors within a given time period. It helps to facilitate the preparation of the financial statements.

A major limitation of the TB is that even though a TB balances, it does not mean that all the transactions have been correctly/properly recorded. Types of errors not revealed by the TB : 1. Error of Principle 2. Error of Commission 3. Error of Omission 4. Error of Original/Prime Entry 5. Compensating Error 6. Error of Complete Reversal

1. Error of Principle-correct amount & correct Dr/Cr posted into a wrong account of a different category of accounts. 2. Error of Commission-correct amount & correct Dr/Cr posted into a wrong account but within the same category of accounts.

3. Error of Omission-an entire transaction (both Dr & Cr) has not been recorded.

4. Error of Original/Prime Entry-errors made in books of original entry (i.e. journals).

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5. Compensating Error-where 2 @ more errors occur, the total amount of errors on the Dr side = amount of errors in Cr side.
6. Error of Complete Reversal-completely reversing the Dr/Cr treatment but with correct amount & accounts.

When the TB does not balance, this indicates that 1 or more errors have been made in the process of recording the transactions. Possible errors : 1. Arithmetic Errors 2. Posting Errors 3. Extraction Errors 4. Omission of Part of an Entry 5. Error of Transposition/Double Entry is Completed with Different Amount

1. Arithmetic Errors-addition errors when adding the debit & credit sides of ledger accounts
2. Posting Errors-either the debit @ credit entry of a transaction is posted to the wrong side of an account. 3. Extraction Errors-errors of addition in the account balances in the Trial Balance or when transferring the account balances from the ledger into the Trial Balance.

4. Omission of Part of an Entry-only 1 aspect @ side of a transaction is recorded.

5. Error of Transposition/Double Entry is Completed with Different Amount-the figures are written in the wrong order.

This account is created to temporarily balance the TB. For any errors shown by the TB, it is important for the business to determine the reason(s) for such imbalance. However, this might not be achieved prior to the preparation of the financial statements. Thus, a suspense account is created, with either a debit or credit balance, in an effort to put the TB into agreement. E.g. if total debit of the TB is larger than the total credit, thus, a Suspense A/c will be created with a credit balance. Difference in the books with the difference amount is recorded on the credit side of the Suspense A/c. In the TB, an item Suspense a/c with a credit balance will appear.

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