Extracting the trial balance - Control totals and cross-cast...

Learning Outcomes

After reading this article, you will be able to explain and apply the procedures for extracting a trial balance, including the use of control totals and cross-casting. You will know how to check ledger accuracy, identify and resolve discrepancies, and recognize the types of errors that can affect the integrity of financial records—ensuring readiness for ACCA Maintaining Financial Records (FA2) assessments.

ACCA Maintaining Financial Records (FA2) Syllabus

For ACCA Maintaining Financial Records (FA2), you are required to understand the processes involved in extracting a trial balance and ensuring accuracy with control totals and cross-casting. You should focus revision on:

• The purpose and process of preparing a trial balance
• The role and calculation of control totals during extraction
• Use of cross-casting to check ledger account arithmetical accuracy
• Identifying errors that affect or do not affect the trial balance totals
• The impact of undetected errors on financial statements

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Control totals are primarily used to:
   1. Calculate profit for the year
   2. Prove the equality of debits and credits in extraction
   3. Confirm the statement of financial position balances
   4. Prepare year-end adjustments
2. Which error will NOT cause the trial balance to disagree?
   1. Recording only one side of a transaction
   2. Posting to the wrong side of an account
   3. Arithmetical error in adding a ledger account
   4. Complete omission of a transaction

3. Briefly describe what is meant by cross-casting in trial balance extraction.

4. True or false? A suspense account is always required if the trial balance does not balance.

Introduction

Accuracy in the trial balance is a key check before producing financial statements. Extracting a trial balance means listing all the balances from the general ledger accounts, separating them into debit and credit columns. To catch errors early, you must use control totals and perform cross-casting, ensuring records are both arithmetically and logically correct. This article explains the procedures and checks required for reliable trial balance extraction, highlighting their importance in maintaining accurate financial records.

Key Term: trial balance
A listing of all the general ledger account balances split into debit and credit columns at a specific date; used to check double-entry accuracy.

Extracting the Trial Balance

The Purpose of the Trial Balance

The trial balance confirms that for every debit entry there is an equal credit entry in accordance with double-entry bookkeeping. A balanced total does not guarantee that accounts are error-free, but an imbalance always highlights the presence of errors.

Control Totals

Control totals are figures calculated outside of, and before entering, the detailed ledger balances. Their purpose is to provide a yardstick against which recorded figures can be checked. Control totals are particularly important when inputting large volumes of information or using computerised systems, but are also relevant for manual extraction.

Key Term: control total
An independently calculated sum used to check the aggregate total of entries or balances against the figure extracted from detailed records.

Cross-Casting

Cross-casting is the process of adding up columns of figures across multiple accounts (e.g. adding the totals of debit and credit column balances). This arithmetic check ensures both columns have been correctly summed. If the totals differ, you should investigate arithmetic and transposition errors.

Key Term: cross-casting
The process of verifying the arithmetic accuracy by adding the entries across accounts or columns, especially relevant for detecting totals and posting mistakes.

Error Identification

If the trial balance does not balance, errors may have occurred. Typical causes include:

• Single-sided entries (only the debit or credit posted)
• Errors in addition (incorrect summing of account totals)
• Posting a transaction to the wrong side of the ledger
• Transposition of figures

Some errors—such as those listed above—will cause the trial balance to disagree and are detectable when cross-casting and using control totals. However, others, like omission of entries or posting to a wrong account but on the correct side, will not be revealed by the trial balance.

Worked Example 1.1

A business extracts the following balances: Total debits $22,300; total credits $22,150.

Question: What steps should be taken to identify the $150 difference?

Answer:

1. Recalculate control totals to verify ledger listings.
2. Cross-cast both columns to ensure addition is correct.
3. Check postings for possible single-sided entries or entries posted to wrong sides.
4. Investigate for transposition or addition errors. If not found, consider opening a suspense account for temporary balancing.

Worked Example 1.2

The total of the purchases ledger accounts (subsidiary ledger) is $12,500, but the purchases ledger control account (in the general ledger) shows a credit balance of $12,700.

Question: How do you resolve this discrepancy?

Answer:

Compare the individual supplier accounts to the control account. Locate and correct any missing entries, duplicated postings, or additions. Ensure that both the detailed analysis and control totals match after adjustments.

Exam Warning

Failure to check control totals before preparation of the trial balance can result in undetected errors that will carry forward into the financial statements.

Summary

When extracting the trial balance, always use control totals and cross-casting to ensure the arithmetic accuracy of both the ledger balances and the extraction itself. These checks identify many errors of recording and addition, supporting reliable preparation of the financial statements. However, remember that the trial balance cannot detect all types of errors, so additional review may be necessary.

Key Point Checklist

This article has covered the following key knowledge points:

• Explain the purpose and preparation of the trial balance
• Apply control totals to check the accuracy of ledger balances
• Use cross-casting to verify debit and credit column additions
• Identify typical errors revealed (and not revealed) by the trial balance
• Understand the limits of trial balance error detection

Key Terms and Concepts

• trial balance
• control total
• cross-casting