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 Trial Balance

By Tej Pratap Singh

https://gradeup.co/ Ex Assistant Audit Officer in CAG
TRIAL BALANCE AND RECTIFICATION OF ERRORS
After Recording and Classifying the transactions, the
next step is to check arithmetical accuracy of the
transactions recorded. Trial Balance is a statement
which shows debit balances and credit balances of all
accounts present in the ledger. Since, every debit
should have a corresponding credit as per the rules of
double entry system, the total of the debit balances
and the credit balances should tally.
Note:
1. Trial balance can be prepared on any date.
2. Trial Balance is made from Ledger & Subsidiary
Books.
3. The purpose to prepare trial balance is to check the
arithmetical accuracy of the accounts.
Objectives Of Trial Balance:
1. To check the arithmetical accuracy of the Ledger
Account.
2. To locate the Errors.
3. To facilitate the preparations of Final Accounts (P&L
A/c & Balance Sheet).
4. It is the basis on which Final Accounts are prepared.
Note:
1) A Debit balance is either an asset or loss or expense.
2) A Credit balance is either a liability or income or
gain.
Limitations of Trial Balance:-
1. As all the Errors made are not disclosed by the Trial
Balance, it would not be regarded as a conclusive
proof of correctness of the books of accounts
maintained.
The fundamental Principle of the double entry system is
that every debit has a corresponding credit of equal
amount and vice versa. The total of all debit balances in
different accounts must be equal to the total of all
credit balances in different accounts, that is, the total
of the two columns should tally.
Illustration: The following balances are extracted from the ledger of Amit on 31 March 2019. Prepare
a trial balance as on that date.
Salaries 36,320 Repairs 1670
Purchases 1,44,670 Capital 1-4-19 62,500
Sales 1,73,500 Sundry Expenses 460
Sundry Debtors 1,430 Drawings 3,500
Plant & Machinery 34,300 Returns Inward 1,000
Travelling Expenses 2,630 Cash at Bank 1,090
Commission Paid 1,880 Discount Allowed 1,150
Carriage Inward 240 Returns Outward 400
Stock on 1-4-19 11,100 Rent and Rates 3,220
Sundry Creditors 14,260 Investments 6,000
 Trial Balance-
Kind of Error & Rectification of Error

By Tej Pratap Singh

https://gradeup.co/ Ex Assistant Audit Officer in CAG
Kinds of Error: 1) Errors of Principle and 2) Clerical Errors

Errors of Principle: Transactions are recorded as per

Generally Accepted Accounting Principles (GAAP). If any of
these Principles is violated or ignored, Errors resulting from
such violations are known as Errors of Principle.
Eg.- Purchase of assets recorded in the Purchases Book.

Note: A Trial Balance will not disclose Errors of Principle.

Clerical Errors: These Errors arise because of mistake
committed in the ordinary course of accounting work.
These can be further classified into:
a) Errors of Omission b) Error of Commission

Errors of Omission: This Error arises when a transaction is

completely or partially omitted to be recorded in the
books of accounts. Errors of Omission may be classified as
below:
1. Error of Complete Omission 2. Error of Partial Omission
1. Error of Complete Omission: Example, goods
purchased but not completely recorded. This
Error does not affect trial balance.

2. Error of Partial Omission: This Error arises when one

aspect of the transaction, either debit or credit is
recorded. Example - a Credit sale of goods to Shiva
recorded in sales book but not posted in Siva's account.
This Error affects the Trial Balance.
Error Of Commission: This Error arises due to wrong
Recording, wrong Posting, wrong Casting, wrong
balancing, wrong carrying forward. Error of commission
may be classified as follows: (i) Error of Recording (ii)
Error of Posting

Error Of Recording: This Error arises when a transaction

is wrongly recorded in the Books of Original Entry. Eg.-
goods of Rs. 5000 purchase on credit from Ravi, is
recorded as Rs. 5500.
Note: This Error does not affect the trial balance.
(ii) Error of Posting: This Error arises when information in
the books of original entry are wrongly entered.
a) Right amount in the right side of wrong account.
b) Right amount in the wrong side of correct account.
c) Wrong amount in the right side of correct account.
d) Wrong amount in the wrong side of correct account.
e) Wrong amount in the correct side of wrong account.
f) Wrong amount in the wrong side of wrong account.
Note: This Error may or may not affect the Trial Balance
Error of Casting (totalling): This Error appears when a
mistake is committed while totalling an account. Eg.- A
total of Rs. 12,000 may be wrongly totalled as Rs.
10,000 is called Under Casting. If it is wrongly totalled
as rupees 13,000 it is called Over Casting.
Error of Carrying Forward - When a mistake is
committed in carrying forward a total of 1 page to the
next page. Total of purchase book in page 282 of the
ledger Rs. 10686, while carrying forward the balance to
the next page it was recorded as rupees 10866.
Compensating Error:- The Errors arising from excess
debit or under debit of accounts being neutralized by
the excess credit or under credits to the same extent of
some other account is compensating Error such that
the Errors in one direction are compensated by Errors
in another direction.
Example - If the purchase book and sales book are both
overcast by rupees 10000, the Error mutually
compensate each other.
Note: 1. This Error will not affect the agreement of Trial
Balance.
2. Arithemetical accuracy of the Trial Balance is not at
all affected in spite of such Errors.
Suspense Account: When it is difficult to locate the mistake
before preparing the final accounts, the difference is
transferred to newly opened imaginary and temporary
account called Suspense Account. Suspense Account is
prepared to avoid the delay in the preparation of final
accounts. If the total Debit balance of the Trial Balance
exceeds the total Credit balance the difference is
transferred to the credit side of suspense account. On the
other hand, if total credit balances of the trial balance
exceed the total debit balances the difference is
transferred to the debit side of the suspense account.
Suspense account is continued in the book until the
Errors are located and rectified. Such balance will be
shown in the balance sheet. Debit balance will be
shown on the assets side and the credit balance will be
shown on the liabilities side. When all the Errors
affecting the trial balance are located and rectified, the
suspense account automatically gets closed.
Note: Types of Errors and Rectification of Errors is very
important. One must memorize well the Errors that are
disclosed by trial balance and the Error that are not
disclosed by trial balance.
Illustration:
Rectify the following errors:
1. Purchases from Ravi for Rs. 500 has been posted to
the debit side of his account.
2. Sale to Nihal for Rs.120 has been posted to his credit
as Rs.102.
3. Purchase from Simran for Rs.750 has been omitted to
be posted to the personal A/c.
Illustration: The following errors were found in the
books of Sujata. Give the necessary entries to correct
them:
1. Salary of Rs. 8,000 paid to Tripti has been debited to
her personal account.
2. Rs.50,000 paid for a laptop was charged to purchases
account.
3. Rs.8,000 paid for furniture purchased has been
charged to office expenses account.
4. Repairs made were charged to machinery account for
Rs.4,500.
5. An amount of Rs.2,000 withdrawn by the proprietor
for his personal use has been debited to trade
expenses account.
6. Rs.2,000 received from Raghu. has been wrongly
entered as from Raghav.