Question

State the limitations of Trial balance.

Answer 1

If the Trial Balance agrees, then it should not be taken for granted, that there is absolutely no errors. In fact, there do exist some errors that are not revealed by a Trial Balance. Such ineffectiveness of the Trial Balance is termed as the limitations of Trial Balance.

The various limitations of the Trial Balance are given below :-

(i) It does not assist to detect errors that arise if an entry is not recorded in the Journal. Such errors are termed as the Errors of Complete Omission.

(ii) If the effect of one error is cancelled by the effect of another error, then it cannot be ascertained by the Trial Balance. Such types of errors are termed as Compensatory Errors. which are rare to find.

(iii) If correct amount is posted in the correct side; however, in the wrong account and if wrong amount is posted in the wrong side, but in the correct account, then the Trial Balance fails to reflect these errors

(iv) If there arises any error of principle, like capital expenditure mistakenly regarded as revenue expenditure or vice-versa, then such errors may not be revealed in form of mismatch between the two columns of the Trial Balance.

(v) If any transaction is recorded wrongly in the books of original entry, then such mistakes lead to the errors of recording which are not revealed by Trial Balance.