What is the purpose of a trial balance and what is its limitation?

• A. To verify that total debits equal total credits; it detects all errors.
• B. To list only cash balances.
• C. To prepare the cash flow statement.
• D. To verify that total debits equal total credits, but it does not detect all errors such as transposition errors or missing entries.

Answer: (D)

A trial balance is a check that the total of all debit balances equals the total of all credit balances in the general ledger. This confirms the arithmetic correctness of postings for the period and helps catch simple posting or addition errors, serving as a stepping stone to preparing financial statements.

Its limitation is that even when debits and credits balance, the records may still be incorrect. A trial balance will not detect certain errors, such as transposition mistakes or missing entries, or situations where an entry is posted to the wrong account but balanced by another error. In short, it proves that the sums balance, not that every transaction and classification is correct.