TRIAL BALANCE 1. A proof of accuracy becomes necessary.—No matter what kind of bookkeeping system is used, and no matter how highly developed the system may be, it is impossible for the bookkeeper to perform his duties, day after day, without making errors. His work is both exacting and monotonous, and it is not surprising that his mind becomes dull at times from the detailed scrutiny of masses of figures. It is true that there are many different kinds of accounting systems devised that have special accuracy as their chief end, but no system, however nearly perfect, is a guarantee against error on the part of the book keeper. The details of some of these more or less elaborate systems will be taken up in Chapter XVII.
Let us consider, for a moment, the errors which may occur in the course of an ordinary day's work. We will suppose that a transaction takes place and that the bookkeeper records it correctly in his journal, expressing an equality of debits and credits; he then posts these debits and credits to the proper accounts. Nevertheless, he may make an incorrect record by post ing an amount incorrectly; by omitting to post a debit or a credit; by posting an item twice; or by failing to total a book of original entry correctly.
2. Former method of testing ledger postings.—The old-time test of the accuracy of ledger postings, which was used for many decades after double-entry book keeping came into use among the Venetian merchants of the 16th century, was a detailed comparison of the debit postings with the corresponding credit postings. When a posting was made to an account that was to be debited, the name of the opposing account—in other words, the account to be credited with the same amount—was written in the explanation column. Likewise, in posting to the account to be credited, the name of the corresponding debited account was also entered in the explanation column in the former ac count. This method enabled the reviewer to ascertain by a detailed comparison whether for each debit a cor responding credit was posted, and vice versa.
3. Modern method—the trial balance.—This com parison was a very laborious process and was long ago superseded by a much more rapid test known as the trial balance. For locating certain errors, this
test, as will appear later, is not so effective as was the former detailed method. But if the test by trial bal ance proves unsuccessful the older method must be resorted to.
A trial balance is an abstract of the debit and credit footings of all the accounts whose footings are not equal, or of their debit or credit balances. Its pur pose is to ascertain whether the ledger is in equili brium, i.e., whether the sum of all the debits equals the sum of all the credits.
Its purpose and value may perhaps be better ap preciated if its developments and the theory on which it is based are briefly reviewed. It has been shown that each business transaction consists of an exchange of valuable rights or valuable services, and that so far as the records are concerned, the values of the rights or services given are equivalent to the values of the rights or services received.
This relationship led to the formulation of the fundamental principle of double entry bookkeep ing, namely: The sum of the debits equals the sum of the credits. If there is an equality of debits and cred its in each individual transaction and operation, then there must also be an equality of debits and credits in all the transactions of any business.
It follows, therefore, that in any complete ledger —the general ledger, for example--if all the debits and credits were correctly assigned in the posting media and correctly posted to their respective ac counts in the ledger, the sum of all the debits en tered in that ledger would be just the equal of the sum of all the credits; in other words, the ledger would be in equilibrium.
This fact is the basis of the all-important test of the accuracy of the bookkeeping records ; it is of very special value because, knowing that these two sums should balance, the bookkeeper can test directly the accuracy of the postings for the equality of the debits and credits as assigned in the posting media. If, when the test is made, it is found that the sum of all the debits in the ledger is not exactly equal to the sum of all the credits, then it is certain that there is at least one error somewhere.