Errors not revealed by the trial balance:
- Errors of Original Entry: These errors occur when a transaction is initially recorded incorrectly. For example, if a transaction is recorded as a credit instead of a debit, the trial balance will still balance because the total debits will equal the total credits. However, the individual account balances will be incorrect.
- Errors of Commission: These errors occur when a transaction is recorded correctly, but the wrong amount is entered. For instance, if a sales invoice for $500 is recorded as $50, the trial balance will still balance because the debits and credits are equal. However, the individual account balances will be wrong.
- Errors of Principle: These errors occur when a transaction is recorded using the wrong accounting principle. For example, if a company capitalizes an expense instead of recording it as an expense, the trial balance will still balance, but the financial statements will be misstated.
- Errors of Omission: These errors occur when a transaction is completely omitted from the accounting records. Since the transaction is not recorded at all, it will not appear in the trial balance.
- Compensating Errors: These errors occur when two or more errors cancel each other out, resulting in a trial balance that still balances. For example, if an expense is understated by $100 and a revenue is overstated by $100, the trial balance will still show equality between debits and credits.
It is important for accountants to review the trial balance carefully and investigate any discrepancies to ensure that the financial statements are accurate and reliable.