Lesson 6 of 9
What it proves
Total debits equal total credits, at $271,600. What that test catches, and the four kinds of error that pass it without leaving a mark.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- A trial balance lists every account balance and checks that the debit total equals the credit total.
- It proves internal consistency, not correctness. Four common errors leave both totals equal and untouched.
- Agreement is a necessary condition for a correct set of books and nowhere near a sufficient one.
Once every entry is posted, a bookkeeper lists every account and its balance in two columns and adds them up. If the columns agree, the arithmetic of the recording process worked.
It is the first check in accounting and the most misunderstood. What it proves is narrow, and knowing exactly how narrow is the point of this lesson.
The two columns, after adjustments
- Total debits$271,600
- Total credits$271,600
The bindery's trial balance
Accumulated depreciation is the one entry that looks out of place. It is an asset account carrying a credit balance, which is called a contra account: it sits against equipment and reduces it, without erasing the original cost. The machine stays on the books at $48,000 and is shown net of $6,000, so a reader can still see what was paid and how much has been written off.
The four errors it will never catch
Why the check is still worth running
It catches the large class of mistakes that arithmetic produces: a one-sided entry, a transposed figure, an amount typed into the wrong column, an addition error. In a hand-kept book those were the common failures and the trial balance was the defence against them.
In a software-kept book the system refuses to post an unbalanced entry at all, so the trial balance almost always agrees. Its role has shifted from catching errors to being the document from which the statements are actually built, which is what lesson nine does with it.
The same limitation, one level up
A published set of accounts has this property too, and it is worth stating plainly because it is the honest reading of an audited balance sheet.
An audit checks that the figures are consistent, supported and presented according to the rules. It does not verify that every estimate inside them will turn out to be right, because those are judgements about the future. A balance sheet that balances is saying the same thing the trial balance says: the recording is coherent. Whether it is true is a separate question with a separate answer.
Check yourself
A trial balance agrees. What has been proved?
- The books are correct
- Total debits equal total credits, so the recording is internally consistent
- Every transaction was recorded
Show the answer
Answer: B.
Agreement proves consistency and nothing more. An omitted transaction, a wrong account or two offsetting errors all leave the totals equal.A machine purchase is recorded as an expense instead of an asset. Does the trial balance catch it?
- Yes, the totals will differ
- No. Both are debits, so the totals are unaffected while reported profit is wrong
- Only if the amount is large
Show the answer
Answer: B.
This is an error of principle. It moves an item between the balance sheet and the income statement without disturbing either column total.Why does accumulated depreciation appear as a credit among the assets?
- It is a liability
- It is a contra account that reduces equipment without erasing its original cost
- It is an error in the listing
Show the answer
Answer: B.
Keeping cost and accumulated depreciation separate lets a reader see both what was paid and how much has been written off, which a single net figure would hide.Sources
- This lesson is taught from first principles. No external source is cited, because no claim here depends on one.
What this leaves out
- Fen Street Bindery and every figure are invented, chosen so both column totals can be added by hand.
- The four error types listed are the traditional classification and are not exhaustive. Fraud designed to balance will also pass this test.
- This trial balance is shown after adjustments. The one taken before them, in lesson five, also agreed and was still incomplete.
- Nothing here is advice about any security.