Explain whether it is true by giving an example that the Trial Balance provides “arithmetic proof of the accuracy of the records, it does not provide “theoretical proof”

December 9th, 2011 Comments off
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It is true that Trial balance provides arithmetic proof of the accuracy of the records when the total of debits and credits agree and the trial balance is in balance merely indicating the equality of the debits and credits for the hundreds or thousands of transactions entered in the ledger.

However, it does not provide theoretical proof for example, when say if we record the purchase of fixed assets ( machinery or furniture & fittings) was INCORRECTLY charged to Expense, the trial balance columns may agree, but theoretically the accounts would be wrong as EXPENSES WOULD BE OVERSTATED AND FIXED ASSETS UNDERSTATED.

 

 

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Financial Accounting

 
 

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