Correcting Errors Step By Step
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
As we saw on page 71, only the following errors will be shown up by the trial balance failing to balance:
- errors of posting one aspect of the transaction to the wrong side of the ledger
- errors of omission of one side of the dual posting
- errors of under- or overstating one side of the transaction
- errors of summation (’casting errors’)
- errors of transposition of digits (e.g. 32 written as 23).
Looking for errors in the trial balance step by step
- 1.If the trial balance fails, look for a figure equal to the error amongst all the balances. If such a figure appears once only, its dual posting may have been omitted from the trial balance (though it may also be included in a larger posting), or that figure may have been missed out when summing the column.
- 2.Next, divide the discrepancy by 2. Look for a figure equal to the quotient of the calculation in the trial balance. If the error is due to something being posted on the wrong side, this will show it up.
- 3.Check whether the discrepancy is divisible by 9. If it is, it may be due to an error of transposition.
- 4.Check your addition of the columns.
- 5.Check that each of the balances in turn have been correctly copied from the ledger accounts.
- 6.Check the balances of the ledger accounts.
Treatment of minor errors
If an error reflected in the trial balance is small (e.g. £30) and it is hard to trace, it is permissible to add it to current liabilities or current assets under the heading suspense account just so that compilation of final accounts can go ahead. But you should never do this when the error is large. When you find the error, correct it in the journal as described (see example on opposite page).
Of course, the true profit or loss figure may be distorted as a result of this error. That is why it is only permissible to handle small errors in this way. When the error is later discovered and corrected, a statement of corrected net profit can be written up to supplement the year’s final accounts.
Correcting errors and closing the suspenses account
Before the error is corrected