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# Chapter 6 Trail Balance and Rectification of Errors

Trial Balance: A Trial Balance is a list of balances of all ledger accounts. It is only a statement and not an account. Trial Balance consists of a debit balance column with all debit balance of accounts and credit column with all credit balances of accounts.

Rectification of Errors:

• Error of Commission is an error, which is committed wrong totalling, wrong casting subsidiary books or wrong recording of amount books of original entry.
• Error of Omission: When a transaction is completely or partially omitted from recorded in books of accounts.
• Error of Principle: When a transaction is recorded in contravention of accounting principle.
• Compensation Error: When two mistakes nullify the effect of each other and spite of error in both the accounts trial balance still agrees.

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### Exercise 1

•  Q1 State the meaning of a trial balance? Ans: Trial Balance is the list of debit and credit balances, taken out from ledger. It also includes the balances of cash and bank taken from the cash book. Trial Balance is a statement, prepared with the debit and credit balances of ledger accounts to test the arithmetical accuracy of the books. Q2 Give two examples of errors of principle? Ans: 1) Purchase of furniture is debited to purchase account instead of furniture account. 2) If the amount spent on the repair of an old machinery is debited to the machinery account instead of the repairs account. Q3 Give two examples of errors of commission? Ans: 1) Purchase of goods from Ravi for ₹ 5,000 on credit entered in the purchase book as ₹500. 2) Sale of goods to Ram on credit for ₹ 420 has been entered in the journal as ₹240. Q4 What are the methods of preparing trial balance? Ans: a) Total Method: In this method, ledger accounts are not balanced. They are totaled. These totals are entered in the debit and credit columns. b) Balance Method: Under this method, the closing balances of ledger accounts are tabulated in a separate statement. The brought down balances are  brought to this statement. Q5 What are the steps taken by an accountant to locate the errors in the trial balance? Ans: Step1: Recheck the totals of both the debit and credit amount columns of the Trial balance. Step2: The exact figure of difference in the Trial Balance should be ascertained. After this, the subsidiary books should be gone through to see if any item of that amount remains unposted Step3: The difference should be halved to find out if some figure equal to half the difference has been posted on the wrong side of an account thereby making the difference double. Step4: The difference in the Trial Balance should be divided by 9. If the difference is completely divisible, it can be a mistake of transportation of figures. Step5: In case, the difference is in a round figure, say ₹1, ₹10, ₹100 etc. There will be a possibility of wrong totalling or wrong carry forwards of the totals of a subsidiary book or there will be an error in the balancing of an account. Step6: Check with the help of the Ledger whether the balance of each and every account including the balances of Cash and Bank have been included in the Trial Balance on the correct side and with the correct amounts. Step7: Check whether all the closing balances from the previous year’s Balance Sheet have been correctly carried forward and recorded in respective ledger accounts. Step8: Check the figures which are not clearly written. Step9: If the difference is of a very big amount, it is just possible that the balance of a certain Ledger account may not have been included in the Trial Balance. Step10: If, in spite of all the above efforts, there is still a difference in the Trial Balance, a complete checking of the postings of all the entries will be necessary. Q6 What is a suspense account? Is it necessary that is suspense account will balance off after rectification of the errors detected by the accountant? If not, then what happens to the balance still remaining in the suspense account? Ans: Suspense Account : Sometimes, inspired by the best efforts of an accountant, all the errors are not located and the Trial Balance does not tally. In such a situation, to avoid the delay in the preparation of final accounts, the difference in the trial balance is placed to a newly opened account known as “Suspense Account” and the Trial Balance tallies. If the debit side of the Trial Balance exceeds the credit side, the difference will be put on the credit side of the suspense account and if the credit side of the Trial Balance exceeds the debit side, the suspense account will be debited. After including the balance of suspense account in the Trial Balance, it will appear to be tallied. Q7 What kinds of errors would cause differences in the trial balance. Also list examples that would not be revealed by a trial balance? Ans: 1) Wrong Casting 2) Posting to the Wrong Side 3) Posting of Wrong Amount 4) Omission of Posting of One Side of an Entry 5) Double Posting in a Single Account 6) Errors of Totalling and Balancing of Accounts in the ledger. Q8 State the limitations of trial balance? Ans: A trial balance has some limitations : 1) It does not prove that all transactions have been recorded 2) It does not prove that the ledger is correct 3) Numerous errors may exist even though the trial balance columns agree 4) It cannot find the missing entry from the journal 5) It cannot find the missing entry from the ledger 6) It cannot protect the repeated postings 7) It cannot protect the offsetting errors 8) It cannot protect the errors of principles 9) It cannot protect the errors of commission 10) It cannot protect the errors of omission In short, a trial balance does not guarantee freedom from recording errors.

### Exercise 23

•  Q1 Tick the Correct Answer Agreement of trial balance is affected by: (a) One sided errors only. (b) Two sided errors only. (c) Both (a) and (b). (d) None of the above. Ans: (c) Both (a) and (b). Q2 Which of the following is not an error of principle: (a) Purchase of furniture debited to purchases account. (b) Repairs on the overhauling of second hand machinery purchased debited to repairs account. (c) Cash received from Manoj posted to Saroj. (d) Sale of old car credited to sales account. Ans: (c) Cash received from Manoj posted to Saroj. Q3 Which of the following is not an error of commission: (a) Overcasting of sales book. (b) Credit sales to Ramesh  5,000 credited to his account. (c) Wrong balancing of machinery account. (d) Cash sales not recorded in cash book. Ans: (d) Cash sales not recorded in cash book. Q4 Which of following errors will be rectified through suspense account: (a) Sales return book undercast by Rs. 1,000. (b) Sales return by Madhu Rs. 1,000 not recorded. (c) Sales return by Madhu Rs. 1,000 recorded as Rs. 100. (d) Sales return by Madhu Rs. 1,000 recorded through purchases returns book. Ans: (a) Sales return book undercast by Rs. 1,000. Q5 If the trial balance agrees, it implies that: (a) There is no error in the books. (b) There may be two sided errors in the book. (c) There may be one sided error in the books. (d) There may be both two sided and one sided errors in the books. Ans: (b) There may be two sided errors in the book. Q6 If suspense account does not balance off even after rectification of errors it implies that: (a) There are some one sided errors only in the books yet to be located. (b) There are no more errors yet to be located. (c) There are some two sided errors only yet to be located. (d) There may be both one sided errors and two sided errors yet to be located. Ans: (a) There are some one sided errors only in the books yet to be located. Q7 If wages paid for installation of new machinery is debited to wages Account, it is: (a) An error of commission. (b) An error of principle. (c) A compensating error. (d) An error of omission. Ans: (b) An error of principle. Q8 Trial balance is: (a) An account. (b) A statement. (c) A subsidiary book. (d) A principal book. Ans: (b) A statement. Q9 A Trial balance is prepared: (a) After preparation financial statement. (b) After recording transactions in subsidiary books. (c) After posting to ledger is complete. (d) After posting to ledger is complete and accounts have been balanced. Ans: (d) After posting to ledger is complete and accounts have been balanced.