A trial balance only enters the totals of credits against the total of debits. The fact that a trial balance tallies is only a basic assurance that there are no mathematical errors in the preparation of accounts. There are limitations to a trial balance. The limitations of trial balance are:
- Errors of Omission: An error of omission occurs when a transaction is not recorded in the books of entry. In such a case the credits and debits for the transaction would balance and omitting to record it would have no impact on the trial balance.
- Errors of Commission: These are errors made by the accounting staff while recording the These errors generally involve cases where the amount entered and the side (debit or credit) are correct but the head is wrong. For example, putting postage expenses under the head of fuel expenes would be termed as an error of commission.
- Compensating Errors: Errors of this type have a tendency to nullify the effect of errors committed earlier. This is a case of multiple errors, where the errors put together tend to cancel out each other.
- Errors of Principle: This category refers to instances where an income or an expenditure is not allocated correctly between the capital and revenue heads.
- Other common errors: Other common errors that go unnoticed in a trial balance are:
- Errors of Original
- Errors of Reversal and
- Errors while Transporting