Key Concepts
Once the errors are corrected, the trial balance must be redrawn so that the balances are right. This is the adjusted trial balance. The method is:
- For each error, identify the accounts affected and how the correction changes each one (add or subtract).
- Apply every correction to the original balance of each affected account.
- Re-total both columns. They must still match — if they do not, a correction has been applied wrongly.
Show the change beside each adjusted balance in brackets, e.g. Cash at bank (6,400 − 1,200 + 1,100), so the working is clear.
Trial Balance as at 31 December 20X4
| Account | Dr ($) | Cr ($) |
|---|---|---|
| Cash at bank | 6,400 | |
| Office equipment | 39,000 | |
| Cost of sales | 125,200 | |
| Trade payables | 17,200 | |
| Trade receivables | 29,600 | |
| Rental income | 5,600 | |
| Drawings | 600 | |
| Insurance expense | 4,800 | |
| Motor vehicles | 35,200 | |
| Salaries expense | 51,000 | |
| Utilities expense | 3,200 | |
| Repairs expense | 1,700 | |
| Discount received | 1,000 | |
| Sales returns | 2,000 | |
| Sales revenue | 204,200 | |
| Capital | 74,900 | |
| Long-term borrowings | 50,000 | |
| Inventory | 54,200 | |
| Total | 352,900 | 352,900 |
The following errors were then discovered:
- A credit purchase of goods for $340 from Faizal was recorded as $430.
- A payment of $1,200 for utilities by cheque was omitted from the books.
- A purchase of office equipment for $400 by cheque was recorded as repairs of equipment.
- A credit sale of goods for $300 to Serena was posted to Farah's account.
- A cheque for $550 received from Hui Lin was recorded by debiting Hui Lin's account and crediting Cash at bank.
| Error | Correcting entry | Effect on the accounts |
|---|---|---|
| 1 |
| Recorded $430 instead of $340 — reduce both by the $90 difference |
| 2 |
| Record the omitted payment in full |
| 3 |
| Move $400 from Repairs expense to Office equipment |
| 4 |
| Total trade receivables: +300 to Serena, −300 to Farah (no change to the total) |
| 5 |
| Sides were swapped — correct by twice the $550, i.e. $1,100 |
Trial Balance as at 31 December 20X4
| Account | Dr ($) | Cr ($) |
|---|---|---|
| Cash at bank (6,400 − 1,200 + 1,100) | 6,300 | |
| Office equipment (39,000 + 400) | 39,400 | |
| Cost of sales | 125,200 | |
| Trade payables (17,200 − 90) | 17,110 | |
| Trade receivables (29,600 + 300 − 300 − 1,100) | 28,500 | |
| Rental income | 5,600 | |
| Drawings | 600 | |
| Insurance expense | 4,800 | |
| Motor vehicles | 35,200 | |
| Salaries expense | 51,000 | |
| Utilities expense (3,200 + 1,200) | 4,400 | |
| Repairs expense (1,700 − 400) | 1,300 | |
| Discount received | 1,000 | |
| Sales returns | 2,000 | |
| Sales revenue | 204,200 | |
| Capital | 74,900 | |
| Long-term borrowings | 50,000 | |
| Inventory (54,200 − 90) | 54,110 | |
| Total | 352,810 | 352,810 |
Both columns fall by $90 — the net effect of all five corrections. The adjusted trial balance still balances, now at $352,810.
This corrected trial balance is the reliable base the financial statements are prepared from — the next step, for G3 students, is to redraw them.
Adjusting only one account for an error. Every correcting entry has two sides — both affected balances must be updated. Changing only one will unbalance the trial balance.
Applying the correction in the wrong direction. Read each correcting entry carefully: a debit to an account with a debit balance increases it; a credit to it decreases it. Getting a sign wrong throws out the totals.
Forgetting that a wrong-account error nets to zero. Moving a sale from one customer to another changes each customer's balance but leaves the total trade receivables unchanged.