Trial Balance is a list of all general ledgers accounts present in the ledger of a business, the main purpose of its creation is to verify the arithmetical accuracy of the accounts. It is carefully prepared after balancing of all the accounts of ledger. Trial Balance consists of two columns, debit side consists of all the debit balances and credit side contains all the credit balances of the accounts.

Question - 2 : - Give two examples of errors of commission.

Answer - 2 : -

Errors that are committed when transactions are recorded with wrong amounts, improper balancing, wrong posting or wrong carrying forwarding are called errors of commission. Here are two examples of such errors.

1. Goods purchased worth Rs 1,000 on credit are recorded in the Purchases Book as Rs 10,000.

This transaction should have been recorded in the Purchases Book with an amount of Rs 1,000; however, it was recorded as Rs 10,000. This is an error due to wrong recording of amount.

1. Total of Sales Book is carried forward as Rs 1,000 instead of Rs 100.

In this case, wrong amount is carried forward from one accounting period to another or from an end of one page to the beginning of another page. This is referred to as an error of carrying forward.

Question - 3 : - Give two examples of errors of principle.

Answer - 3 : -

Errors that are committed when recording of transactions is done against the accounting principle are known as Errors of principle. Here are some examples of the same.

(i) Wages paid for construction of building debited to Wages Account

In this transaction, wages paid for the construction of building is a capital expenditure, so the building account should have been debited. However, it is treated as a revenue expenditure and Wages Account is debited. It is not in accordance with the accounting principle and hence is an error.

(ii) Amount spent on repair of machinery debited to Machinery Account

In this transaction, amount of repair on machinery is a revenue expenditure. It should have been debited as ‘Repairs’, but it is wrongly debited to the Machinery Account which is an error of principle.

Question - 4 : - What are the methods of preparing trial balance?

Answer - 4 : -

Below are diagrammatically explained methods to prepare Trial Balance.

The following are the methods of preparing trial balances.

Totals method: In Totals method, the total of each side (debit and credit) of the ledger account is determined individually and then it is shown in the trial balance in each of the respective columns. Accounting is based on the double entry system, therefore the total of debit column and the total of credit column in the trial balance should be in agreement with each other.

Balances Method: In this method the closing balances of all accounts are tabulated in a different sheet. In this method brought down balances are brought to this statement.

Totals-cum-balances Method: It utilizes both the totals method and balances method. There are four columns, of which two columns are for writing debit and credit totals of accounts while, two columns are for writing the debit and credit balances of these accounts.

Question - 5 : - What is a suspense account? Is it necessary that 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 suspense account?

Answer - 5 : -

There may be instances when the total of the debit column is not matching with that of the credit column. At that time the difference of the trial Balance is added to a temporary account to avoid delay in preparation of the financial statements. Such accounts are known as Suspense account. Suspense account is a temporary account in a company which contains unclassified debits and credits. If the debit column falls short of the credit column, then the Suspense Account is debited and vice versa.

Errors as soon as detected and rectified, results in Suspense Account being automatically closed (i.e. becoming zero). However, if still any difference exists, then it is transferred to the Balance Sheet. If the Suspense Account shows a debit balance, then it is recorded in the Assets side and if the Suspense Account shows a credit balance, then it is recorded in the Liabilities side of the Balance Sheet.

Question - 6 : - What are the steps taken by an accountant to locate the errors in the trial balance?

Answer - 6 : -

An accountant can take the following steps to locate errors in the Trial Balance:

Determine the errors if any by re-recording debit and credit entries in the trial balance.
Check for any omission of account and recording that entry in trial balance.
Check trial balances of previous year and compare with the current year.
Check correctness of all ledgers
Half the difference, then check whether any amount is posted in the wrong column of the Trial Balance.
Try to divide the difference by 9, if it is completely divisible, then it’s an error of transposition of figure, i.e. 123 is written as 132.
Entries of Subsidiary Books should be checked once again if there is difference of Rs 1, Rs 10, Rs 100, Rs 1000, etc., if difference still exists and it is not possible to detect the reason for the difference, then for the time being, that particular difference is transferred to the suspense account in order to proceed further.

Question - 7 : - What kinds of errors would cause difference in the trial balance? Also list examples that would not be revealed by a trial balance?

Answer - 7 : -

The errors that lead to the differences in the Trial Balance are termed as one-sided errors. These errors affect only one account. Here are some types of errors that can cause difference in trial balance

If any account is wrongly casted, it is termed as the error of casting.
If balances from previous year’s books or from one end of page to another is wrongly carried forward. These types of errors are termed as the errors in carrying forward.
If entries are posted in completely wrong side of the accounts.
On Posting of a wrong amount in account, this is termed as the error of posting.
If entries are recorded partially, then due to the error of partial omission the trial Balance does not agree.

Here are a few examples that would not be revealed in a Trial Balance:

Purchases made from Raj, recorded in Rohit’s Account, who is another creditor
Wages paid for construction of building, recorded in the Wages Account

Question - 8 : - State the limitations of trial balance?

Answer - 8 : -

There are some errors that are not revealed by a Trial Balance. This inadequacy of the Trial Balance is termed as the limitations of Trial Balance. Here are some of the limitations of a trial balance.

It is unable to detect errors known as Errors of Complete Omission which arise when an entry is not recorded in the Journal.
It is unable to detect errors known as Compensatory Errors which is the effect of one error that is cancelled by the effect of another error.
The Trial Balance fails to reflect errors such as if correct amount is posted in the correct side; but, in the wrong account and if wrong amount is posted in the wrong side, but in the correct account.
It is unable to detect errors of principle that may take place in the account.
It is unable to detect errors due to wrong entry in accounts, which can lead to errors.

Question - 9 : - Describe the purpose for the preparation of trial balance.

Answer - 9 : -

Here are some points which explain the purpose of preparation of trial balance:

1. Instituting the arithmetical accuracy: When the sum of debit balance accounts equals to sum of credit balance accounts, it is presumed that posting from journal to the particular accounts is arithmetically correct.

2. Summarising the ledger accounts: It acts as a consolidated statement, providing a complete list of all the accounts. In this way, a Trial Balance provides a summarised version of each account.

3. Preparation of final accounts− The Trial Balance acts as a summarised version of each account, so different accounts can be directly transferred to Balance Sheet, Trading, and Profit and Loss Account without actually referring to different ledgers.

4. Identifying and rectifying errors: If the Trial Balance is not in agreement, the indications are of the occurrence of arithmetical error, which can be easily determined. Trial balance is only restricted to determine arithmetical errors.

Question - 10 : - Explain errors of principle and give two examples with measures to rectify them.

Answer - 10 : -

When recording oftransactions in the original book of entry is done against the accountingprinciple, it leads to errors which are known as Errors of principle. Theseerrors are not reflected in the Trial Balance. These errors arecommitted when there is no proper distinction between capital expenditure andrevenue expenditure, or vice versa or between capital income and revenue incomeor vice versa.

The following exampleswill help with the process of understanding and rectification of such errors.

Let us consider firstexample. Wages paid for construction of building are debited to Wages Account.

Wrong entry made is:

Wages A/c		Dr.
	To Cash A/c
( Wages paid in cash)

In this case, Wages ispaid for the construction of building which is a capital asset and hence itshould be treated as a capital expenditure and by rule should be debited to thebuilding account. But, the Wages Account is wrongly debited.

Thus, the correctentry that should have been made is:

Building A/c		Dr.
	To Cash A/c
(Wages paid for construction of building)

In order to rectifythis error, the entry for rectification should be:

Building A/c		Dr.
	To Wages A/c
(Wages paid for construction of building was debited to Wages Account, now rectified)

The second example oferrors of principle is the sale of old machinery recorded as sales.

Wrong entry made:

Cash A/c		Dr.
	To Sales A/c
(Sales of old machinery, recorded as sales)

In the above case, thesale of old machinery should not be recorded as sales; in fact theMachinery Account should be credited. Thus, the correct entry that should havebeen made is:

Cash A/c		Dr.
	To Machinery A/c
(Old machinery sold for cash)

The error can berectified in the following manner: Sales Account will be debited, as it iswrongly credited and machinery will be credited, as it will not berecorded in the books. Thus, the rectifying entry will be:

Sales A/c			Dr.
	To Machinery A/c
		(Sale of old machinery recorded as sales, now rectified)

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