Question

What are the limitations of trial balance?

Explain the limitations of a trial balance.

Answer 1

The following are the limitations of a trial balance:

1. It is possible to prepare a trial balance of an organization only if the double-entry system is followed.
2. Even if some transactions are omitted, the trial balance will tally.
3. The trial balance may tally even though errors are committed in the books of account.
4. If the trial balance is not prepared in a systematic way, the final accounts prepared on the basis of the trial balance may not depict the actual state of affairs of the concern.
5. Agreement of the trial balance is not conclusive proof of the arithmetical accuracy of entries made in the accounting records. This is because there are certain errors that are not disclosed by the trial balance, such as the complete omission of a transaction, compensating errors, and errors of principle.