CARA'S TIPSTrial balance, correction of errors and suspense accounts
JAMBWAECNECO
What the syllabus asks
JAMB: Topic 2 (e) trial balance, (f) correction of errors and suspense account
WAEC: Trial balance: purpose, preparation and limitations; errors not revealed and revealed by the trial balance; correction of errors; suspense account
NECO: Trial balance: purpose, preparation and limitations; errors not revealed and revealed by the trial balance; correction of errors; suspense account
What you will learn
- State the purpose and limitations of a trial balance.
- Prepare a trial balance from ledger balances.
- Identify errors that do and do not affect the agreement of the trial balance.
- Correct errors by journal entries.
- Open and clear a suspense account.
- Prepare a statement of corrected net profit.
Key points
- A trial balance lists ledger balances to check arithmetical accuracy.
- Debit: assets, expenses, drawings; credit: liabilities, capital, income.
- Closing inventory is usually a note below the TB.
- Six errors not revealed (COP-OCR): commission, omission, principle, original entry, compensating, complete reversal.
- Revealed: one-sided postings, casting, one-side transposition, wrong side, extraction errors.
- Correct errors by journal entries, never by erasing.
- Suspense account goes on the short side and must clear to nil.
- Complete reversal and wrong-side errors need double the amount.
- Corrections to income statement items change profit.
Start here: Meaning and purposes of a trial balance
When every transaction has been posted and every account balanced, the bookkeeper lists the balances in two columns: debit balances on the left and credit balances on the right. This list is the trial balance (TB). It is not an account and it is not part of the double-entry system; it is a working statement prepared at a date, for example “Trial balance as at 31 December 2026”.
Because every debit entry has an equal credit entry, the total of all debit balances should equal the total of all credit balances. If they agree, the bookkeeper has some evidence that the arithmetic of the double entry is correct.
Purposes (uses) of a trial balance
- Arithmetical check: it tests whether the double-entry rule has been followed and the accounts added correctly.
- Basis for final accounts: the income statement and statement of financial position are prepared directly from it.
- Summary of the ledger: it gives in one place the balance of every account, useful for managers.
- Detection of errors: if it fails to agree, the bookkeeper knows that some errors exist and can search for them.
- Aid to audit: auditors start their work from the trial balance.
A trial balance can be prepared at any time (monthly in many firms) but is always prepared at the end of the financial year before final accounts.
Rule for which column
Use DEAD CLIC (fa3): debit balances are expenses, assets and drawings (and losses); credit balances are liabilities, income and capital (and gains). Two items students often misplace: returns inwards (debit, it reduces sales) and returns outwards (credit, it reduces purchases). Carriage inwards and carriage outwards are both expenses, so both are debits. Discount allowed is a debit (expense); discount received is a credit (income).
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Practice questions
- ledger balances at a date
- all transactions for the year
- assets only
- day-book totals only
Show answer
A: ledger balances at a date
It lists debit and credit balances to test arithmetical accuracy.
- Purchases
- Drawings
- Carriage inwards
- Sales
Show answer
D: Sales
Sales is income: credit.
- Capital
- Bank loan
- Discount allowed
- Discount received
Show answer
C: Discount allowed
Discount allowed is an expense: debit.
- original entry
- omission
- commission
- principle
Show answer
B: omission
Neither side is recorded, so the trial balance still agrees.
- commission
- principle
- omission
- complete reversal
Show answer
A: commission
Right class of account but wrong personal account.
Key words
- Trial balance
- A list of the balances on ledger accounts at a date, arranged in debit and credit columns.
- Error of omission
- A transaction completely left out of the books.
- Error of commission
- An entry made in the wrong personal account of the correct class.
- Error of principle
- An entry made in the wrong class of account, e.g. asset debited to an expense.
- Error of original entry
- A wrong amount recorded in the book of original entry and posted on both sides.
- Complete reversal
- Correct amounts and accounts used, but debit and credit reversed.
- Compensating error
- Two or more errors that cancel each other out.
- Casting error
- A mistake in addition (undercast = total too small, overcast = too large).
- Transposition error
- Digits of a number swapped, e.g. 12 000 written as 21 000.
- Suspense account
- A temporary account opened for the trial balance difference.
- Journal entry
- A record in the journal showing the account debited, the account credited, amounts and narration.
- Narration
- A brief explanation written under a journal entry.
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