Errors disclosed by a trial balance
Some types of errors will result in a difference between the total of the debit column of a trial balance and the total of the credit column. This can happen when a mistake is made:
- Calculating the total of one of the columns in a book of prime entry
- Posting the wrong amount from one of the columns in a book of prime entry
- Posting part of an entry in the General Ledger on the wrong side of the account
- Calculating the value of a ledger account balance
- Preparing the trial balance
What should we do when the trial balance does not balance?
If a trial balance does not balance, you should first check to ensure that all ledger account balances have been included and that none have been duplicated. Probably the most common error of this type is to omit a bank or cash balance as these balances might be recorded in the Cash Book and not in the General Ledger.
Secondly, you would check that the correct balance is recorded in the trial balance. So you would check that the amount recorded is correct and that it is shown on the right side of the trial balance.
If either of the above errors were made when preparing the trial balance, we would simply correct the accounts and/or amounts recorded in the trial balance.
If however, we have made the above checks and there is still a difference, we would then open a suspense account.
Suspense accounts
A Suspense account is a General Ledger account that is used for two main reasons:
- To enable a Trial Balance to balance
- To enable a transaction to be posted to the General Ledger despite some information about the transaction being missing. For example, we might know that a bank transfer of £1,000 has been made but might not know who the payment was made to. If the postings cannot wait until we discover who has been paid we would credit the Bank account with the £1,000 paid and then debit the Suspense account with the same amount
Please note that a Suspense account must be cleared as soon as possible and, in any event, it must be cleared by the end of the business’ accounting year-end.
Opening a Suspense account using a journal
If there is a difference between the total of debits and credits in a trial balance we should post the difference to a Suspense account on the smaller of the two sides. Once this is done, the Trial Balance can be updated to include the Suspense account at which point the two columns should add up to the same number.
Illustration
The following trial balance has been prepared by a bookkeeper from a business’ General Ledger
The total credits exceed total debits by £900 (i.e. £16,600 less £15,700) so the bookkeeper would check that there are no ledger account missing and that the totals of both columns have been calculated correctly. If no such errors are found, the bookkeeper would record the following journal.
Note that the £900 difference is debited to the Suspense account as the debit column is the smaller than the credit side.
The above will then be posted to the Suspense account in the General Ledger
The business’ trial balance can now be updated to include the Suspense account and now the column totals should add up to the same amount.
The bookkeeper should now attempt to find the error or errors that have been made. The Suspense account will be cleared when the errors are corrected.
In the next several pages we will look at how those types of differences that are disclosed by a trial balance can be corrected.
