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Accounting Information System: Trial Balances and an Audit Trial Essay

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Updated: May 8th, 2022

Trial balances and an audit trail are some of the useful reports in the running of a business. “A trial balance is chiefly prepared to examine the arithmetic accuracy of accounts” (Banerjee 2010, p. 273). For that reason, a trial balance is not an account, but a list of account balances. “In accounting, an audit trial is the sequence of paperwork that validates or invalidates accounting entries” (Rouse 2005, para. 1). In computing terms, an audit trial is an electronic log that tracks all activities of a computer (Rouse 2005). This essay explains the usefulness of a trial balance and the audit trial in a business.

A trial balance is prepared at the end of a financial period. Therefore, it is an important undertaking when a business is closing its books. A trial balance is used to find out whether a company’s books are still in balance (Banerjee 2010). In addition, a trial balance enables a business to trace errors in accounting entries. One finds out that there are errors in the various entries when the trial balance fails to balance. Some of these errors include failure to book one side of a ledger account, entering different figures for the same entry and booking a debit entry as a credit entry or a credit entry as a debit entry (Banerjee 2010). However, a trial balance does not disclose all errors. Some of the errors not disclosed by a trial balance include errors of commission, omission and principle (Banerjee 2010). There are two methods of extracting a trial balance. The first method involves use of ledger account balances. In this case, all debit balances are listed on the left side of a trial balance and the credit balances on the right. The other method involves use of control accounts such as the sales and purchases ledger (Angelfire, n.d.).

An audit trial is a report that confirms that certain accounting operations or events took place at a given time (Rouse 2005). Therefore, an audit trial traces the source of accounting information (Investopedia n.d.). In addition, this report records improper activity in a company’s computing department. In e-commerce, companies use audit trial to document customers’ activities (Rouse 2005). All the transactions between the company and the customer are, hence, recorded in an audit trial. These records are later used to respond promptly to inquiries and complaints from customers. Improper market activities are also traced using an audit trial (Investopedia n.d.). In this case, an audit trial analyses and documents all brokers and houses taking part in a specific trade. As a result, it is easier to indentify a culprit when problems arise. An audit trial can also be used to reconcile accounts. In addition, this report facilitates planning and budgeting as it provides a historical report. Moreover, incase of tax audits, an audit trial provides a record showing all sales entries. Furthermore, an audit trial is one of the most important tools in investigations involving cybercrimes (Rouse 2005). For instance, investigators follow the activity log of a hacker’s internet service provider to expose him.

Trial balances and audit trials help a business to run its operation smoothly. A trial balance makes sure that all accounts are arithmetically correct. On the other hand, an audit trial ensures that all computing and accounting operations can be traced to their source.

References

Angelfire n.d., Control accounts. Web.

Banerjee, B.K 2010, Accountancy for class xi, PHI Learning Pvt. Ltd, New Delhi.

Investopedia n.d., Web.

Rouse, M 2005, Audit trail. Web.

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IvyPanda. "Accounting Information System: Trial Balances and an Audit Trial." May 8, 2022. https://ivypanda.com/essays/accounting-information-system-trial-balances-and-an-audit-trial/.

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IvyPanda. 2022. "Accounting Information System: Trial Balances and an Audit Trial." May 8, 2022. https://ivypanda.com/essays/accounting-information-system-trial-balances-and-an-audit-trial/.

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IvyPanda. (2022) 'Accounting Information System: Trial Balances and an Audit Trial'. 8 May.

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