Unit 3 - Verification of Accounting Records
3.1 Trial Balance
Trial balance - a statement of ledger balances on a particular date.
Uses of trial balance
-
Summarises the accounts of a business.
-
Checks accuracy of double keeping bookkeeping.
-
Easier to prepare financial statements.
Limitations of a trial balance
-
Too much time to prepare.
-
Errors might still exist. Errors which do not affect the trial balance: commission, compensating, complete reversal, omission, original entry, principle.
3.2 Correction of Errors
Error of commission. Entry made in the wrong account, but same class of account.
Error of principle. Entry made in the wrong account.
Error of omission. Transaction overlooked & not recorded.
Entry of original entry. Mistake in the amounts of both transactions.
Entry of complete reversal. Debit and credit are reversed.
Compensating error. One error has been compensated by another entry that's also in error.
Suspense account - A temporary measure to balance the trial balance.
3.3 Bank Reconciliation
Bank statement - A document that summarises transactions of money going in and out of your bank account.
Bank reconciliation statement:
-
To detect any errors in recording transactions caused by timing differences.
-
Includes bank errors, uncredited deposit and unpresented cheques.​​​​​​
3.4 Control Accounts
Sales ledger control account
-
A book that contains accounts of all credit customers.
-
Used to monitor the amount that customers owe.
Purchases ledger control account
-
A book that contains accounts of all credit suppliers.
-
Used to monitor the amount owed by your business to suppliers.
The books of prime entry are sources of information for the control account entries.
