Trial Balance and Rectification of Errors Test 44

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Trial Balance and Rectification of Errors Test 44

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Weekly Quiz Competition

Question 1
1 / -0

_______ arise because of the failure to differentiate between capital expenditure and revenue expenditure and capital receipts and revenue receipts.

A
Errors of partial omission

B
Errors of complete omission

C
Errors of principle

D
Compensating errors

Solution

Accounting entries are recorded as per the generally accepted accounting principles. If any of these principles are violated or ignored, errors resulting from such violation are known as errors of principle. An error of principle may occur due to incorrect classification of expenditure or receipt between capital and revenue. This is very important because it will have an impact on financial statements. It may lead to under/over stating of income or assets or liabilities, etc. These errors do not affect the trial balance.
Question 2
1 / -0

If the trial balance do not agree after transferring the balance of ledger accounts including cash and bank balance and also errors are not located timely, then the trial balance is tallied by transferring the difference of debit and credit side to an account known as -

A
Memorandum Account

B
Capital Account

C
Suspense Account

D
Drawing Account

Solution

Trial balance is prepared to check and confirm the posting of all accounting entries. Trial balance is prepared with the help of ledger account. All the balances from each of ledger account is taken in a list in the debit and credit column. Both the sides of trial balance must be equal as accounting is based on the double entry system of accounting.
If the trial balance do not agree and errors not located before the finalization of accounts, the difference amount has to be transferred to suspense account.
Question 3
1 / -0

Errors of commission do not allow:

A
Correct totalling of the Balance Sheet

B
Correct totalling of the Trial Balance

C
The Trial Balance to agree

D
None of these

Solution

Errors due to wrong posting of amount or posting to the wrong account, wrong recording of amount in books of original entry is known as error of commission. When a wrong amount is posted in ledger or in subsidiary books, the total of the account will be wrong affecting the balance of that account. This balance is transferred to the trial balance, which does not tallies.
Question 4
1 / -0

Goods costing Rs.10,000 given as charity were not recorded. The errors will result in :

A
Increases in Net Profit

B
Decreases in Net Profit

C
No Effect on Net Profit

D
None of these

Solution

Gross profit from the trading account is transferred to the profit and loss account to calculate net profit. In the trading account When purchases account balance is more, gross profit is less and vice versa.
Journal entry for goods given as charity is -
Charity A/c Dr 10000
To Purchases A/c 10000
This implies purchases account balance is reduced, but if the transaction is not recorded, the purchase account will show increased balance leading to lesser gross profit and simultaneously net profit will decrease.
Question 5
1 / -0

A debit balance $$(Rs.5000)$$ of Ram, a debtors entered as a credit Balance of $$Rs.500$$ in the trial balance :

A
Rectifying entry is not requires to be passed

B
Rectifying entry is required to be passed and posted is required in all the affected accounts.

C
Rectifying entry is required to passed but no posting in the ledger required in case of Ram

D
None of the above

Solution

When a debit balance is wrongly posted as credit balance in the trial balance, the trial balance will not tally and there's need for passing a rectifying entry.
In the case, debtor's account is correct and the balance calculated is correct, error is in the wrong posting to the credit side of the trial balance. Hence, rectifying entry will be passed but there would be no change in debtor's(Ram) account.
Question 6
1 / -0

Which of the following error will affect the Trial Balance ?

A
Wrong recording in purchase Book and posted accordingly

B
Wrong recording in Journal proper but not posted at all

C
Correct recording in Sale Book but not posted

D
Errors of posting involving the posting to wrong account on correct side with correct amount

Solution

All the transactions recorded under double entry system of accounting has a dual effect i.e., its effect can be seen on two accounts, so if the transaction is posted in one account and omitted to be posted in the other account, the balances of which is transferred to the trial balance thereby causing disagreement in the trial balance.
For example, if credit sale is recorded in the sales book and omitted to be posted in debtor's account there will be disparity between the balances.
Question 7
1 / -0

The main object of opening suspense account is __________ .

A
To tally the trial balance

B
To avoid the delay in the preparation of financial statements

C
To rectify the errors

D
None of these

Solution

Trial balance is prepared to check the accuracy of the original books of accounts. It helps in preparing the final accounts without any error. Rectifying error after preparing final accounts can take a lot of time and labour. When there is error in the trial balance, a suspense account is created to rectify the error and help in the preparation of final accounts more easily and without delay.
Question 8
1 / -0

Goods costing Rs.10,000 destroyed by fire were not recorded. the error will result in

A
Increase in Gross Profit

B
Decrease in Gross Profit

C
No effect on Gross Profit

D
Either c(a) or (b)

Solution

Gross profit is calculated from the trading account. It is the difference between sales, closing stock and purchases,direct expenses. Any increase in the balance of purchases account results in decrease in the value of gross profit.
When goods are destroyed by fire, the value of the purchase account decreases. The journal for this transaction is -
Loss by fire A/c Dr 10000
To Purchases A/c 10000
Let us assume the entry is not recorded in the books, total of credit side of trading account is 500000 and debit side (including purchases) is 120000, the gross profit will be 380000.
When the entry is recorded in the books, purchases account balance will reduce by 10000, the gross profit the calculated will be (500000-110000) 390000. Thus when entry of loss by fire is not recorded, the gross profit decreases.
Question 9
1 / -0

Which of the following errors is an error of Principle?

A
$$Rs.600$$ received from Ganpat has been debited to his account

B
Purchase of $$Rs.2,000$$ has been entered in the sales journal

C
Repairs to building have been debited to Building Account

D
None of these

Solution

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.
In the case repairs to building is a revenue expenditure whereas building account refers to capital expenditure spent on acquiring the building. Repairs is revenue expense and is deducted from the profit and loss account of the year.
Question 10
1 / -0

Goods costing Rs. 10,000 taken by the proprietor for personal use were not recorded. The errors will result in :

A
Increase in Gross Profit

B
Decrease in Gross Profit

C
Non effect on Gross Profit

D
Either (a) or (b)

Solution

When goods are withdrawn by proprietor, the journal entry passed is -
Drawings A/c Dr 10000
To Purchases A/c 10000
If this entry is not recorded in the books, the gross profit will decrease. Gross profit is calculated from the trading account, it is the difference between sales, closing stock and purchases, direct expenses. When the entry of drawing is not recorded the purchase account will show more debit balance, leading to decrease in the gross profit.
For example lets assume the transaction related to drawing of goods is not recorded and sales= 500000, closing stock= 50000, purchases=100000 and direct expenses= 20000. the gross profit here is 430000. This is when drawings is not deducted from the purchases.
After deducting the amount of goods withdrawn from purchases (100000-10000), the new gross profit is (550000 - 110000) 440000. This implies error of omission of entry of goods withdrawn reduces the gross profit.

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Trial Balance and Rectification of Errors Test 44

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Trial Balance and Rectification of Errors Test 44

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Question 1

Errors of partial omission

Errors of complete omission

Errors of principle

Compensating errors

Solution

Question 2

Memorandum Account

Capital Account

Suspense Account

Drawing Account

Solution

Question 3

Correct totalling of the Balance Sheet

Correct totalling of the Trial Balance

The Trial Balance to agree

None of these

Solution

Question 4

Increases in Net Profit

Decreases in Net Profit

No Effect on Net Profit

None of these

Solution

Question 5

Rectifying entry is not requires to be passed

Rectifying entry is required to be passed and posted is required in all the affected accounts.

Rectifying entry is required to passed but no posting in the ledger required in case of Ram

None of the above

Solution

Question 6

Wrong recording in purchase Book and posted accordingly

Wrong recording in Journal proper but not posted at all

Correct recording in Sale Book but not posted

Errors of posting involving the posting to wrong account on correct side with correct amount

Solution

Question 7

To tally the trial balance

To avoid the delay in the preparation of financial statements

To rectify the errors

None of these

Solution

Question 8

Increase in Gross Profit

Decrease in Gross Profit

No effect on Gross Profit

Either c(a) or (b)

Solution

Question 9

$$Rs.600$$ received from Ganpat has been debited to his account

Purchase of $$Rs.2,000$$ has been entered in the sales journal

Repairs to building have been debited to Building Account

None of these

Solution

Question 10

Increase in Gross Profit

Decrease in Gross Profit

Non effect on Gross Profit

Either (a) or (b)

Solution

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