A standard practice in double-entry bookkeeping systems, a trial balance is a standard T format account used to produce a quick check of the accuracy of a businesss records and to efficiently assemble a profit and loss statement or balance sheet. The procedure is simple and quick, but the does not ensure the companys records do not contain errors. To assemble a trial balance, all general ledger
. accounts are listed on a worksheet along with their values; debits and credits are placed in corresponding columns. If the total debits equals total credits, no mathematical errors have been made in the companys bookkeeping system. The limitations of the trial balance include errors of original entry, omission, reversal, commission, principle, compensation and transposition. An error of original entry occurs when both sides of a transaction are recorded incorrectly. For example, when a 30 dollar invoice is entered incorrectly as a 300 dollar transaction in both the debit and credit columns. When a transaction is simply not entered into the bookkeeping system, an error of omission occurs. When the debit and credit columns are unintentionally transposed but the amounts are recorded correctly, the bookkeeper has made an error of reversal. Errors of commission take place when a transaction is recorded in the wrong account; an example illustrating this concept is when a postage expense is debited to a different account that is also an expense account. The opposite of an error of commission is an error of principle. In this instance the amounts are recorded in the right column, but placed in the wrong type of account. Compensating errors consist of multiple unrelated incorrect entries that cancel one another out. The final error, a transposition error, occurs when numeric values in a transaction are transposed, for example, the entry is recorded as 12 dollars, but in actuality is a 21 dollar transaction. While the trial balance is a good tool to check for mathematical accuracy, the technique is not sensitive enough to capture any of the above errors. www.investopedia.com/terms/t/trial_balance.asp or http://www.futureaccountant.com/accounting-process/study-notes/trial-balance.php
