Uses the cash‑book balance taken from the trial balance as the starting point.
3.3 – Control Accounts
Summarise large groups of similar transactions.
Control‑account balances appear in the trial balance and help locate posting errors.
4 – Preparation of Final Accounts
Income statement, balance sheet, adjusting entries.
The unadjusted trial balance supplies the figures that are subsequently adjusted.
2. Definition, Purpose & Uses
Definition: A trial balance is a statement that lists the closing balances of all ledger accounts at a particular date, showing debits in one column and credits in another.
Primary purpose: To check that the total of the debit column equals the total of the credit column after all postings have been made.
Key uses
Detect arithmetic and posting errors in the ledger.
Provide the unadjusted figures for the preparation of the Income Statement and Balance Sheet.
Serve as a reference when preparing other verification tools (bank reconciliation, control accounts, suspense accounts).
3. Limitations of a Trial Balance
Will not detect errors of omission (an entire transaction omitted from the books).
Will not detect errors of commission where the correct amount is posted to the wrong account.
Will not detect errors of principle (e.g., treating a capital expense as revenue).
Will not detect compensating errors where two or more mistakes offset each other.
Only checks arithmetic accuracy; it does not guarantee that the underlying accounting treatment is correct.
4. Preparing a Trial Balance – Step‑by‑Step Procedure
List every ledger account in the order: Assets → Liabilities → Equity → Revenue → Expenses.
Enter the closing balance of each account in the appropriate column (Debit or Credit).
Add the Debit column and the Credit column separately – use column‑addition, a calculator or spreadsheet.
Compare the two totals.
If they are equal, the trial balance “balances”.
If they differ, move to the error‑finding procedure (Section 7).
5. Worked Example – Wrong‑Side Entry (Sales Returns)
Balances extracted from the ledger at 31 May 2025 are shown below.
A large difference usually indicates a wrong‑side entry or a duplication.
“Sales Returns” is a contra‑revenue account and should carry a debit balance. Its presence on the credit side is therefore suspicious.
Step 3 – Correct the error
Move the £1,800 from the Credit column to the Debit column for Sales Returns.
Re‑calculate the totals.
Re‑calculated totals
Debit = 40,400 + 1,800 = 42,200
Credit = 60,500 − 1,800 = 58,700
The totals still differ (£16,500). In the exam you would continue the error‑finding process until the balance is achieved. The key point is the systematic approach shown above.
6. Worked Example – Transposition Error
All balances are correct except one digit has been transposed.
Because the difference equals one of the credit amounts, a likely cause is a transposition when copying the Sales Revenue figure. The digits 2 and 8 have been swapped – the correct amount should be £2,800.
Corrected entry: Sales Revenue = £2,800 (credit)
New credit total = 7,420 + 7,560 + 2,800 = 17,780. New difference = £2,800, which matches the transposition error (a multiple of 9). The trial balance now balances after the correction.
7. Types of Errors & Typical Symptoms in a Trial Balance
Error Type
Definition (Cambridge wording)
Typical symptom in the trial balance
Omission
Entire transaction not recorded in the books.
Totals still balance – the error cannot be detected by the trial balance.
Commission
Correct amount, but posted to the wrong account.
Totals still balance – the mistake is revealed later in the financial statements.
Principle
Correct amount, but the wrong accounting principle applied (e.g., a capital expense recorded as revenue).
Totals still balance – the financial statements are misstated.
Transposition
Digits reversed when copying a figure (e.g., £530 recorded as £350).
Difference between totals equals a multiple of 9 (often the exact transposed amount).
Duplication
The same transaction recorded more than once.
Totals differ by the duplicated amount.
Compensating errors
Two or more errors that offset each other.
Totals still balance, but individual accounts are wrong.
8. Suspense Accounts
If the source of an imbalance cannot be located immediately, a suspense account is opened.
The difference (debit or credit) is entered in the suspense account so that the trial balance balances temporarily.
When the error is found, the amount is transferred out of the suspense account and the account is closed (its final balance should be zero).
9. Adjustments Before Preparing Final Accounts
Before the trial balance can be used to draw up the Income Statement and Balance Sheet, adjusting entries (accruals, pre‑payments, depreciation, etc.) must be posted to the ledger. A new adjusted trial balance is then prepared using the same procedure as in Section 4.
10. Procedure for Amending an Incorrect Trial Balance (AO2)
Re‑check each ledger balance against the trial‑balance entry (amount and side).
Confirm that every account appears once and in the correct order.
Re‑add the debit and credit columns using a reliable method (calculator or spreadsheet).
Calculate the difference between the two totals.
Use the error‑type table (Section 7) to hypothesise which error could produce that difference.
Locate the suspect account(s) and correct the entry:
Move an amount to the opposite side (wrong‑side error).
Adjust the amount (transposition or duplication).
Re‑enter a missing transaction (omission).
If the error cannot be found, record the difference in a suspense account.
Re‑compute the totals; repeat steps 4‑7 until the trial balance balances.
Document every correction made – useful for AO3 (evaluation) and for exam mark‑scheme credit.
11. Quick Revision Checklist (AO3 – Evaluation)
All ledger accounts listed in the correct order?
Each balance placed on the correct side (debit/credit)?
Figures copied accurately from the ledger?
Column totals added correctly?
Do the totals match?
If not, have you identified the size of the discrepancy?
Considered the possible error types (use the table in Section 7).
Used a suspense account where appropriate?
Have you noted any limitations of the trial balance for the upcoming exam question?