if the trial balance only lets one know if that is equals credits why would it...

if the trial balance only lets one know if that is equals credits why would it be beneficial to review this report especially if you are using an automated system that requires debits and credits are equal before posting a general journal entry?

Expert Solution

Answer) Trail balance is prepared using the double entry system which requires every debit has credit. Even if the trial balance shows equal debits and credit balance, it doesn't provide the accuracy of financial statements. There are various types of errors which can be there while preparing the trial balance. So even in the automated system, it would be beneficial to review the report before posting a general journal entry. Various types of errors are as follows:

1. The error of the principle: this type of error is done when the basic rules of accounting are violated. like furniture purchased being posted to purchase account. Such type of error cannot be determined from trial balance as instead of debiting furniture account, we have debited to purchase account with the same amount, it will result in matching of both debit and credit balance in trial balance and such error will remain undetected in the trial balance.

2. The error of omission: Such error deals with the complete omission of the transaction in the books of accounts. As this error will also not be detected in the trial balance as it has been completely omitted to be recorded and balance of the debit side and credit side of trial balance will match.

3. The error of Commission: This type of error deals with the clerical errors such as the wrong amount, wrong totaling, etc.

4. Compensating errors: Such type of errors are very difficult to detect as two errors are made in this case where both errors compensate for the effect of other error committed, which results in matching up of the debit and credit balance of trial balance.

ekkarill92 answered 1 year ago

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