Trial Balance and Rectification of Errors Test 16

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Trial Balance and Rectification of Errors Test 16

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Question 1
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Which of the following will disturb the balancing of the trial balance?

A
Entering an acquisition of an asset, on credit terms, in the purchases day book.

B
Posting to an asset account instead of an expenditure account.

C
Entering a wrong amount in a book of prime entry.

D
Error in adding up a book of prime entry.

Solution

Trial balance will disagree when there is a one sided error. If any error is done in adding up a book of prime entry, trial balance will not be tallied.

In the first three cases, these are double sided error, hence there will be no affect on trial balance.
Question 2
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The difference in trial balance is transferred to _________ if the errors are not identified.

A
suspense account

B
memorandum account

C
capital account

D
profit & loss account

Solution

Ideally all errors have to be rectified before the end of the financial year. If the errors are not identified, than the difference in trial balance has to be transferred to a temporary account which is known as suspense account.

All rectification entries has to be passed through suspense account.
Question 3
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If a transaction is entered more than one time, it is known as _______________.

A
duplicating error

B
errors of complete omission

C
errors of principle

D
compensating errors

Solution

If a transaction is entered more than one time, its a duplicating error. For example, credit sales of Rs.500 to Ram is recorded twice or an expense of Rs.200 debited twice in expense account.
Question 4
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Accounting Errors can be classified into ______________.

A
Errors of Principle

B
Clerical Errors

C
Both (A) & (B)

D
None of the Above

Solution

Accounting errors are classified as:
1) Error of Principle
2) Error of commission
3) Error of Omission
4) Compensating error

Other than error of principle, all the above errors are considered as clerical errors. Error of principle is that where the fundamental rules of accounting are not followed.
Question 5
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Indicate which of the following errors will cause the trial balance to be out of balance?

A
A debit to an incorrect expense account.

B
A credit to an expense account instead of a credit to an income account.

C
A debit to an asset account instead of a credit to a liability account.

D
A credit to an income account instead of a credit to an expense account.

Solution

Double side error will not affect trial balance as in such cases both the sides i.e. debit and credit are affected. There will be no difference in trial balance due to such error.
A debit to an asset account instead of a credit to a liability account will affect the trial balance.
Question 6
1 / -0

Which of the following errors will be revealed by the trial balance?

A
Errors of principle.

B
Compensating errors.

C
Wrong balancing of an account.

D
Both (A) & (B).

Solution

Error of principle- it can not be revealed by the trial balance.
Compensating error- It can not be revealed by the trial balance as one error will be compensated by the other error.
Wrong balancing of an account- It will affect the trial balance agreement as this will be one sided error.
Question 7
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Treating a revenue expense as a capital expenditure is an example of __________.

A
compensating errors

B
errors of principle

C
errors of omission

D
errors of commission

Solution

When an fundamental accounting principles are not followed while recording a transaction, it is an error of principle. For example, treating capital expenditure as revenue expenditure or vice -versa.

For example, purchase of machinery is debited to trading purchases. Its an error of principle.
Question 8
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Which of the following statement is true?

A
Error of totaling is an error of principal.

B
Agreement of trial balance is not affected by error of principal.

C
Error of principal does not affect profit & loss for the period.

D
All of the above.

Solution

When a fundamental accounting principles are not followed while recording a transaction, it is an error of principle. For example, treating capital expenditure as revenue expenditure or vice -versa.
In case of error of principle, trial balance will not be affected.
Question 9
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While finalizing the current year accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by Rs$$50,000$$. As a result__________________.

A
Previous year profit is overstated and current year profit is also overstated.

B
Previous year profit is understated and current year profit is also overstated.

C
Previous year profit is overstated and current year profit is also understated.

D
There will be no impact on the profit of either the previous year or the current year.

Solution

In case of overstatement of closing stock in previous year the profit of the previous year is overstated and the profit of the current year is understated. In previous year the cost of goods sold is reduced by 50,000 there by increasing the gross profit ( sale - COGS) and in the current year closing stock of previous year is the opening stock of current year there by increasing the Cost of goods sold and reducing the profits.
Question 10
1 / -0

If the amount is posted in the wrong account or it is written on the wrong side of the account, it is called _________.

A
Error of omission

B
Error of commission

C
Error of principle

D
Compensating error

Solution

Option B is correct.
Error of commission - A mistake that consists of doing something wrong, such as including a wrong amount, or including an amount in the wrong place.
Error of omission - An error of omission happens when you forget to enter a transaction in the books. You may forget to enter an invoice you’ve paid or the sale of a service.
Error of principle - A transaction that incorrectly uses an accounting principle is called an error of principle.
A compensating error is an accounting error that offsets another accounting error. These errors can be difficult to spot when they occur within the same account and in the same reporting period, since the net effect is zero.

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Trial Balance and Rectification of Errors Test 16

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Trial Balance and Rectification of Errors Test 16

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Question 1

Entering an acquisition of an asset, on credit terms, in the purchases day book.

Posting to an asset account instead of an expenditure account.

Entering a wrong amount in a book of prime entry.

Error in adding up a book of prime entry.

Solution

Question 2

suspense account

memorandum account

capital account

profit & loss account

Solution

Question 3

duplicating error

errors of complete omission

errors of principle

compensating errors

Solution

Question 4

Errors of Principle

Clerical Errors

Both (A) & (B)

None of the Above

Solution

Question 5

A debit to an incorrect expense account.

A credit to an expense account instead of a credit to an income account.

A debit to an asset account instead of a credit to a liability account.

A credit to an income account instead of a credit to an expense account.

Solution

Question 6

Errors of principle.

Compensating errors.

Wrong balancing of an account.

Both (A) & (B).

Solution

Question 7

compensating errors

errors of principle

errors of omission

errors of commission

Solution

Question 8

Error of totaling is an error of principal.

Agreement of trial balance is not affected by error of principal.

Error of principal does not affect profit & loss for the period.

All of the above.

Solution

Question 9

Previous year profit is overstated and current year profit is also overstated.

Previous year profit is understated and current year profit is also overstated.

Previous year profit is overstated and current year profit is also understated.

There will be no impact on the profit of either the previous year or the current year.

Solution

Question 10

Error of omission

Error of commission

Error of principle

Compensating error

Solution

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