CHAPTER

Trial Balance, Errors

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and Their Rectification

1.0 MEANING OF A TRIAL BALANCE

1 Trial Balance is a statement which shows

either the
debit items and credit items of all accounts in the balance or total amounts of
balances. ledger and the Cash and bank
1.2 A trial balance is a statement and not an account.
13 A trial balance is prepared on a particular date and not for a
particular period.
2.0 OBJECTIVES OF ATRIAL BALANCE
The main objectives of preparing the trial balance are as under:
2:1 To ascertain the arithmetical accuracy of
ledger accounts. A tallied trial
balance indicates that equal debits and credits have been
recorded in the
ledger accounts.
2.2 To help in locating errors. An untallied trial balance indicates that some
error(s) has (have) been committed.
2.3 To facilitate the preparation of financial statements. A trial balance can
directly be used for preparing the financial statements and need not refer
to the ledger. All revenue and expense accounts appearing in the trial
balance are transferred to the Trading and Profit & Loss Account and all
liabilities, capital and assets are carried over to the Balance Sheet.

3.0 LIMITATIONS OF A TRIAL BALANCE

S1 A tallied trial balance merely indicates that equal debits and credits have been
recorded in the books of accounts.
A tallied trial balance does
not ensurethat
(a) all transactions have been correctly recorded (i.e., correct book, correct
account, correct amount)
0) all entries/total (e.g., total of purchases book etc.) have been correctly
with
posed in the ledger, (i.e. posting to correct account on correct side
corect amount.)
13,2
Fundamentals of Accountingfor
Common Proficiency Test
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3.3 A tallied Trial
Balance is not a conclusive proof of the
accounts since certain accuracy of the bo
cy of
types of errors remain even when the
Trial book
tallies. The
following errors do not affect the Trial balance at all. R. Balance
(a) Error of Principle,
b) Compensating eror,
(c) Error of complete omission,
(d) Eror of Recording in the books of original entry, and
(e) Posting a correct amount in the account but on the
wrong correct side
4.0 METHODS OF PREPARATION OF ATRIAL BALANCE
To verify the correctness of the
posting of ledger accounts in terms of the dehi
and credit amounts
periodically, a periodic trial balance may be prepared (a
at the end of a month or
quarter half-year. Though
or a trial balance may h
prepared at any time, but it should be prepared at the close of the accountino
period so as to verify the arithmetical accuracy of the ledger accounts
the preparation of the financial statements. It before
may be noted that a Trial Balance
is always prepared on a particular date and
not for a particular period. A Tral
Balance may be prepared by following either the Balance
Method or Total
Amount Method.

4.1 Balance Method Under this method, the

balances of all the accounts
(including Cash and Bank Account) are incorporated in the trial balance. It
may be noted that a trial balance by this method can be
the ledger accounts have been balanced. prepared only when all
A format of a Trial Balance by 'Balance
Method' is shown below:

Format of Trial
a
Balance by Balance Method
Trial Balance (Name
...
of the Enterprise)..
as at ...
(date on which the Trial Balance is being prepared)
S.No. Name of Account
LF Debit Balance CreditBalance
Rs P Rs P
Purchases Alc P-I
Sales Alc XXX
S-1
Purchases Returns A/e XXX
Sales Returns Alc P-2
XXX
Cash A/c S-2 XXX
6 Bank Ale C-1 XXx
7 B-1
Capital A/c XXX
8 Salaries A/c C-2
XXX
9 S-3
Furniture Ac XXX
10 Ram's A/c F-1 XXX
11 R-1
Shyam's A/c XXX
S-4
XXX

Total XXX
Note: The Ledger Folios' (LF) are XXX

totally imaginary.
 ERRORS

1. Errors
affecting a Trial Balance
(Otherthan those committed while preparing a Trial Balance) 2. Errors not affecting a Trial Balance

1.1 Errors of Partial

Omission 1.2 Errors of Commisslon
Related to Subsidiary Books Related to Ledger Book
e.g. e.g.
(a) Error of casting (a) Error of Posting on the wrong side of a
(b) Eror in carrying forward correct account
(b) Error of Posting of Wrong amount
(c) Wrong balancing/totalling of an account
(d) Error in Carrying forward of a Total of
an account

2.1 Error of Complete Omission 2.2 Error of Commission 2.3 Error of Principle 2.4 Compensatory Errors
Related to Subsidiary Books Related to Ledger Book
Related to Subsidiary Books Related to Ledger Book
e.g, omission of recording a e.g., omission of posting
transaction in all related accounts of a
e.g. e.g
(a) Error of recording in the (a) Posting of a Correct
transaction Correct book amount on correct side
(b) Recording in a wrong book of a wrong account