The main motif behind the accountants preparing the trial balance is to check and correct the entire book of accounts. If the total debit balance at the end of the accounting year, fails to match with the credit balance, it is for sure that there has been some error while recording the transactions in the subsidiary books. It is quintessential to identify these errors and rectify them as soon as possible to make sure and proceed with the preparation of the final accounts. But the problems lie in somewhere else. Not all types of error can be identified by tallying the trial balance, because there are some errors which do not have any effect on the trial balance at all. It is the task of the accountant to invest some extra energy and find out the errors individually in order to prepare the trading, profit and loss account and the balance sheet full proof. So what are the possible errors that one might notice at the end of their annual accounts?
While discussing this particular problem Brent Allsup Arrest identifies some of the common errors that often happen while preparing the trial balance. When the transaction is recorded against the fundamental principles of accounting, it is an error of principle. There might be some clerical errors as well. At times, while recording huge amounts of transactions, they tend to miss partially or completely, and as a result of it, a particular transaction might not be recorded at all. Such an error of omission can have a huge impact on the entire trial balance. While these can be figured out to some extent, the most problematic of all are those which often get counter balanced by another error, and are not generally disclosed in the trial balance at all. Finding these out can be extremely tough and it requires lot of attention and minute detailing on part of the accountant.
Those who are new into the industry wonder, how big these errors can effect in the books of account. They must note that only those specific accounts which are transferred to the trading and profit and loss account can affect the net profit of the business in the end of the accounting year. If there’s an error and the nominal account is being debited, then the amount of profit will decrease and losses might increase. Rectifying them will just reverse the entire scenario, and the business might see some face of profit as well. So is the case if the nominal account is being completely credited instead of being debited.
On the other hand, if the error is created on the personal or real account, it tends to affect the assets, liabilities, debtors and even the creditors of the firm. Hence as a result of it, the impact will be directly into the balance sheets. Businessmen believe that it is solid accounting that turns out to be the pillar of business and hence they prefer keeping experts like Brent Allsup Arrest in the accounting department. It is the year long experience that matters while dealing with things that need precision.