When you are preparing a trial balance, you may find that you have an unbalanced trial balance. This means that you have an error somewhere in the accounting process. Finding and correcting that error is where accountants and bookkeepers earn their stripes.
Below are possible sources of errors in your trial balance and steps on how to correct them.
Adding the debits and credits for the trial balance incorrectly
In preparing your trial balance, you add up the credit totals from your ledger account balances and place that total on the trial balance for that ledger account in the credit column. You do the same for the debit totals. One of the most common errors (and most easily found) is simply adding the columns incorrectly.
Solution: Double check your math and add the columns again. Typically, I'll add the column from top to bottom, then again from bottom to top, to make sure I get the same answer.
Forgetting to include a ledger account balance on the trial balance
Again, the trial balance contains the debit and credit totals from each ledger account. If you forget one, your trial balance will not in fact balance.
Solution: Here's a quick way to find out if this is the problem. One of your columns (credit or debit) will be smaller than the other one. Subtract the smaller total from the bigger total to find the missing amount. Now check each of your ledger account balances and see if you find the missing amount. If you do, that's a good indicator that you forgot to include that ledger account balance on your trial balance.
Putting the ledger account balances in the wrong debit/credit column in the trial balance
Sometimes you may accidentally put your credit total in the debit column or vice versa. Either way, this will overstate one side of your trial balance and understate the other, yielding an unbalanced trial balance.
Solution: This approach is similar to the previous section, except divide the missing amount in half. Look through the ledger account balances for this halved missing amount and you'll find your culprit.
Example: This one warrant an example. The ledger account names are irrelevant, so let's say in a perfectly balanced trial balance you have eight account balances:
- Debits: 15, 35, 55, 25
- Credits: 20, 30, 10, 70
Adding these up you get a debit total of 130 and a credit total of 130. Now let's say you mistakenly put the 15 under the credits:
- Debits: 35, 55, 25
- Credits: 20, 30, 10, 70, 15
Now when you add them up you get a debit total of 115 and a credit total of 145. So, following the solution above:
- Subtract the two: 145-115=30
- Divide it in half: 30/2=15
There's the 15 you misplaced!
Writing the wrong ledger account balances in the trial balance columns
Copying down the wrong numbers is also a common error, one that we've all made from time to time. Any such mistakes will cause the credit and debit totals to slip out of balance.
Solution: Go back and compare the credit and debit totals for each ledger account balance against the original ledger account and make any necessary corrections.
Miscalculating the ledger account totals
The trial balance totals up the ledger account balances you plug in. If you make a mistake determining those balances, though, the trial balance isn't going to add up. (In the computer programming world this is referred to as "garbage in, garbage out.")
Solution: Go back through each of your ledger accounts and recalculate the balances, and compare your new answer to the one you put on the trial balance. If the mistake is in here, you'll find it.
Posting a journal entry incorrectly to the general ledger
All transactions start as journal entries, and then are posted to the general ledger. If you make a mistake while posting the entry, whether by entering the wrong transaction amount or getting debits and credits mixed up, the effect will trickle down through the process and unbalance your trial balance.
Solution: There are two possible solutions to try here. First, calculate the missing amount as described above in solution #2, then get the halved missing amount as described above in solution #3. Now scan through the general ledger for any transactions with either amount; if you mis-posted a transaction it should show up in this search.
If you still don't find it, then this is where things start to get tedious. (Hopefully your hunt doesn't get this far.) Compare your journal entries against your general ledger transaction by transaction, to make sure you posted every one correctly. Not fun…
Making an error in your journal entry
Again, all transactions start as journal entries. If you get that wrong, whether using the wrong transaction amount or forgetting part of a compound journal entry, then the effect will trickle down through the process and unbalance your trial balance.
Solution: If you thought the last step was tedious, this one is worse. (Especially since you already spent time doing the last step!) You need to go back to the journal and review all of your entries to find the mistake.
Preparing a trial balance is a straightforward activity, but it can be complicated by a number of seemingly small errors. Thankfully, most unbalanced trial balances can be re-balanced after only a few of the above remedies.
Going forward, it is best to remember the old adage that an ounce of prevention is worth a pound of cure. Be careful when you make your journal entries, when you post to the general ledger, and when you prepare your trial balance. A little care will go a long way to keeping your trial balances balanced.