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CMA Foundation · Fundamentals of Financial and Cost Accounting · Trial Balance

Which one of the following is a genuine limitation of the trial balance as a check on accuracy of the books?

A trial balance can agree even when wrong accounts have been debited and credited with equal amounts. It only tests arithmetic equality of debit and credit totals, not the correctness of the accounts used, so errors of principle, commission and compensating errors may remain hidden.

  1. AIt cannot show the balances of ledger accounts at a date
  2. BIt can agree even if wrong accounts were debited and credited with equal amountsCorrect
  3. CIt always disagrees when an error of principle occurs
  4. DIt is prepared before ledger accounts are balanced

Explanation

A trial balance only checks arithmetical equality of total debits and credits. If the wrong accounts are used but equal amounts are posted on both sides, totals still tally. The other options are incorrect: a trial balance does list balances, errors of principle do not cause disagreement, and it is prepared after balancing ledgers.

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