Trial Balance and Rectification of Errors Test 43

Overcasting of sales book will results a higher profit. Its an error of commission. If the error is located after the trial balance, following rectification entry need to be passed:

Difference : 36,480−34,680=1,800 its an error of commission. 36,480−34,680=1,800
Amount of purchase is short by Rs1,8001,800. As purchase has debit balance and it comes on the debit side of trial balance, the trial balance must be short by Rs1,8001,800 on the debit side.

This is an error of commission. Instead of crediting the account of Mr. P, account of Mr. Q is credited. Hence while rectification, the account of Mr. P and Mr. Q will be affected. Following rectification entry will be passed:

If any error is found after the preparation of trial balance, no change can be made in the books of accounts. So, a suspense account is prepared to rectify posting errors, the balance of which is transferred to the trial balance and due to which the trial balance tallies. 

Error of principle is the violation to the basic principles of accounting. In this distinction between capital and revenue items is not made.

There are some errors in preparing the trial balance which does not affect the equality of debits and credits of the trial balance but violates its objective of checking the accuracy of the accounts. These are errors that remain undetected in spite of the agreement of a trial balance.

Error of principle – When the fundamental principle of accounting is violated while preparing the accounts, this is known as error of principle. These errors are made when there’s no proper distinction between capital and revenue items i.e., capital expenditure being treated as revenue expenditure and vice versa.

Compensating errors – Compensating errors is when the effect of one error is neutralized by some other errors. For example, if Ram’s account is debited with 500 instead of 5000 and on the other hand Shyam’s  account is debited with 5000 instead of 500. This situation would not have any effect on the trial balance .

Error of complete omission – If a transaction is completely omitted or not recorded in the journal or any subsidiary books, it is termed as error of omission. Such error will not effect the trial balance as it is not recorded on the debit side of an account nor on the credit side of another account.

The trial balance consists of debit and credit balances of different ledger accounts. Recording any amount on the correct side of the wrong account does not affect the trial balance because the net effect of the error remains the same. 

Transactions are recorded first in cash book and journal and then posted to ledger and the balances of the ledger accounts is transferred to the trial balance. In between this some entries might be recorded in one account but omitted in another, in this case the trial balance will not tally.

Trial balance is prepared from the balances of the ledger accounts and ledger is prepared from journal entries. If a transaction is wrongly recorded in journal and posted to the ledger account, then the trial balance will not tally. But, if the journal is wrong and is not posted at all, this means no debit or credit effect on the accounts. Hence there will be no effect on the trial balance.

Compensating error is one that offsets another accounting error.