Chapter 6 Trial Balance and Rectification of Errors NCERT SOLUTION CLASS 11TH ACCOUNTS | EDUGROWN NOTES

Short Answer Type Questions

Q1. State the meaning of a Trial Balance.
Solution: Trial balance is a statement prepared to check the arithmetical accuracy of transactions recorded in the journal, posted into the ledger and balanced in the ledger accounts.  The balance of ledger accounts shows the difference between the total of the debit items and credit items in an account. Personal, real and nominal accounts are considered for preparing the trial balance. Generally, it is prepared at the end of an accounting year. However, it may be prepared at the end of any chosen period, which may be monthly, quarterly, half yearly or annually depending upon when it is required. It helps in the preparation of the financial statements.

Q2. Give two examples of errors of principle?
Solution: Generally accepted accounting principles are to be followed to record the accounting entries. When accounting entries are recorded in contravention of accounting principles, it is known as an error of principle.

1. Wages paid for installation of new machinery debited to wages account:
2. Wages paid for installation of new machinery is a capital expenditure and accordingly machinery account should have been debited. But, here it is treated as revenue expenditure and is debited to wages account. Thus, it violates the accounting principle.
3. Amount spent on repair of building debited to machinery account: Expense on repair is revenue expenditure and not a capital expenditure. The amount should have been debited to repairs account and to the machinery account which is a capital account. Thus, it violates the accounting principle.

Q3. Give two examples of errors of commission?
Solution: Errors of commission are committed because of wrong recording, wrong posting, wrong balancing and wrong casting of subsidiary books. Such errors affect the accuracy of the trial balance.

1. Cash received from a creditor worth Rs.5,000 is recorded in the cash book as Rs.500.
   The transaction is recorded in the cashbook as Rs.500 instead of Rs.5,000. This is an error because of the wrong recording of amount in the cash book.
2. Amount received from Arun Rs.2,000, is wrongly posted in Tarun’s account.
   In this transaction, Tarun’s A/c is credited instead of Arun’s A/c. This is referred to as an error of wrong posting of transactions.

Q4. What are the methods of preparing trial balance?
Solution: A trial balance can be prepared in the following three ways :

1. Totals Method: In this method, the total of the debit and the credit side of the ledger is determined and presented separately in the trial balance. The total of both the sides should match as the accounts are based on double entry system.
2. Balances Method: In this method, the balances of all ledger accounts are presented in their respective debit and credit columns of the trial balance. The total of both the sides should match as the accounts are based on double entry system and this method of preparing a trial balance is widely used because it helps in the preparation of financial statements.
3. Totals-cum-balances Method: This method is a blend of the totals and balances method. This method has four columns. The first two columns are to write the totals of the debits and credits of the various accounts and the other two columns are to write the debit or the credit balances of these accounts. This method is time consuming, and hence are not used widely.

Q5. What are the steps taken by an accountant to locate the errors in the trial balance?
Solution: Steps to identify the errors:

1. Recast the totals of the debit and credit columns of the trial balance.
2. Compare each account head and its amount appearing in the trial balance with that of the ledger to detect any difference in amount or omission of any account.
3. Compare the trial balance of the current year with that of the previous year to check the additions or deletions to any accounts and to verify if there is any unexplained difference in amounts.
4. Re-check the correctness of balances of individual accounts in their respective ledgers.
5. Re-check the accuracy of the postings in individual accounts from the transactions entered in the books of original entry.
6. If the difference between the debit and credit columns is of `1, `10, `100 or `1000, the casting of the subsidiary books should be re-checked.
7. If the difference between the debit and credit columns is divisible by 2, then there is a possibility that an amount equal to half the difference may have been posted to the wrong side of another ledger account.
8. The above point may also indicate a complete omission of a posting.
9. If the difference is divisible by 9, the mistake could be because of transposition of figures.
10. Still, if it is not possible to locate the errors, the difference in the trial balance for that moment is transferred to the suspense account. All the one-sided errors detected are rectified through this account.

Q6. 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?
Solution:
In certain cases, when the debit column and the credit column of a trial balance do not agree, then the difference of the trial balance is transferred to a temporary account which is called a suspense account. This account is created to avoid any delay in creation of the financial statements. If the debit column falls short of the credit column, then the suspense account is debited and if the credit column falls short of the debit column then the suspense account is credited.

When all the errors are detected and rectified, then the suspense account automatically gets balanced. However, when errors still exist and are not rectified, the suspense account will not balance off and the balance amount of the suspense account will have to be transferred to the balance sheet. The debit balance of the suspense account is shown on the assets side and the credit balance is shown on the liabilities side of the balance sheet.

Q7. What kinds of errors would cause difference in the trial balance? Also list examples that would not be revealed by a trial balance? 
Solution:
One-sided errors are the errors which when committed affect the agreement of the trial balance. These errors affect only one account and any one side i.e. debit or the credit side of the account. Errors of partial omission, recording transactions with wrong amount, casting, posting of incorrect amount are examples of one-sided errors.
Two-sided errors do not affect the agreement of the trial balance. Here, are a few examples which would not be revealed in a trial balance:

1. Purchases from Mr. Shah, completely omitted to be recorded in the purchase book.
2. Purchases made from Vijesh, recorded in Ritesh’s account who is another creditor.
3. Stationary purchased for office use recorded in the purchase book.

Long Answer Type Questions

Q1. Describe the purpose for the preparation of trial balance. 

ANSWER: The important purposes for which the trial balance was prepared are explained with the help of the following points:

1. Ascertain the arithmetical accuracy of ledger accounts – The trial balance helps to ascertain whether all the debits and credits are properly recorded in the ledger. When the debit and the credit balances are equal, it is said that the posting and the balancing of the accounts is arithmetically correct. However, the tallying of the trial balance cannot be considered as a conclusive proof of accuracy of the books.
2. Helps in locating errors – When a trial balance does not tally, it helps in detecting or locating the errors. The error may have occurred at any one of the stages of an accounting process; namely,
   1. Totaling of the subsidiary books
   2. Posting of journal entries in the ledger
   3. Calculating account balances
   4. Carrying account balances to the trial balance
   5. Totaling the trial balance columns
3. Helps in the preparation of the financial statements – Trial balance is a statement which lists the debit and credit balances of all ledger accounts and helps in the preparation of the financial statements. Hence, it is considered as a connecting link between the accounting records and the preparation of financial statements.

Q2. Explain errors of principle and give two examples with measures to rectify them.

ANSWER: Generally accepted accounting principles are to be followed to record the accounting entries. When accounting entries are recorded violating or ignoring these principles, the error, thus, committed is known as error of principle. These errors do not affect the agreement of the trial balance.

Wages paid for construction of building are debited to wages account.
Wrong entry:

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

Wages paid for the construction of building is to be treated as a capital expenditure and has to be debited to the building account instead of the wages account. Thus, the correct entry is

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

Hence, to rectify the error Building A/c needs to be debited and Wages A/c needs to be credited as it was wrongly debited. The rectifying entry is:

Building A/c	Dr.
	To Wages A/c
(Being wages paid for construction of building wrongly debited to wages account, now rectified)

Furniture purchased for Rs.10,000 wrongly debited to purchases account.
Wrong entry made:

Purchase A/c	Dr.
	To Cash A/c
(Being furniture purchased wrongly debited to purchases account)

Furniture is an asset and the purchase of the same should be debited to furniture account instead of purchases account. Thus, the correct entry is:

Furniture A/c	Dr.
	To Cash A/c
(Being old machinery sold for cash)

To rectify this error, Furniture A/c needs to be debited and Purchase A/c needs to be credited as it is wrongly debited. Thus, the rectifying entry is:

Furniture A/c	Dr.
	To Purchase A/c
(Being furniture purchased for wrongly debited to purchases account, now rectified)

Q3. Explain the errors of commission and give two examples with measures to rectify them.
ANSWER: The errors which are committed because of wrong posting of transactions, wrong balancing of accounts, wrong casting of subsidiary books, wrong totaling or wrong recording of amount in the books are all error of commission. These errors affect the agreement of the trial balance.

1. Purchases done from Rohan worth Rs.10,000 recorded as Rs.1,000.
Here, the transaction is recorded for Rs.1,000 instead of Rs.10,000. This is an error of wrong recording of amount. Purchases A/c requires a further debit of Rs.9,000 and Rohan’s A/c requires a further credit of Rs.9,000.The rectifying entry is:

Purchases A/c	Dr.	9,000
	To Rohan’s A/c			9,000
(Being goods purchased from Rohan of Rs.10,000 wrongly recorded as Rs.1,000, now rectified)

2. Sales book totaled as Rs.5,000 instead of Rs.50,000.
Here, the total sales of the book are short by Rs.45,000. This error can be rectified at any of the following two stages:

1. If the error is located before preparing trial balance, then Rs.45,000 should be recorded in the credit side of Sales Account.
2. If an error is located after preparing Trial Balance, then assuming that a suspense account is opened the following entry needs to be recorded.

Suspense A/c	Dr.		45,000
	To Sales A/c		45,000
(Being sales book wrongly totaled as Rs.5,000 instead of Rs.50,000)

Q4. What are the different types of errors that are usually committed in recording business transaction?
ANSWER:  According to the nature of errors committed, errors are classified into the following four categories:

1. Errors of Commission: The errors that are committed because of wrong posting of transactions, wrong balancing of accounts, wrong casting of subsidiary books, wrong totaling or wrong recording of amount in the books are all error of commission. These errors affect the agreement of the trial balance.
2. Errors of Omission: These errors are of two types and are committed when a transactions is partially or completely omitted to be recorded in the books.
   1. Error of complete omission – When a transaction is completely omitted to be recorded in the books of accounts or to be posted in the respective ledgers, it is an error of complete omission. Such errors do not affect the agreement of the trial balance.
   2. Error of partial omission – When a transaction is partially omitted while recording in the books or amounts or partially omitted from posting in the ledger, it is an error of partial omission. Such errors affect the agreement of the trial balance.
3. Errors of Principle: Accounting transactions are to be recorded following certain principles. If any of the principle of accounting entries are violated or ignored and the error occurring due to such violation is called error of principle.
4. Compensating errors: When two or more errors are committed in such a way that the net effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors.

Q5. As an accountant of a company, you are disappointed to learn that the totals in your new trial balance are not equal. After going through a careful analysis, you have discovered only one error. Specifically, the balance of the Office Equipment account has a debit balance of Rs.15,600 on the trial balance. However, you have figured out that a correctly recorded credit purchase of pen-drive for Rs.3,500 was posted from the journal to the ledger with a Rs.3,500 debit to Office Equipment and another Rs.3,500 debit to creditors accounts. Answer each of the following questions and present the amount of any misstatement:
(a) Is the balance of the office equipment account overstated, understated, or correctly stated in the trial balance?
(b) Is the balance of the creditors account overstated, understated, or correctly stated in the trial balance?
(c) Is the debit column total of the trial balance overstated, understated, or correctly stated?
(d) Is the credit column total of the trial balance overstated, understated, or correctly stated?
(e) If the debit column total of the trial balance is Rs.2,40,000 before correcting the error, what is the total of credit column.
ANSWER:
Pen-drive is wrongly debited to office equipment account, instead of stationery account and supplier account is debited instead of crediting. Because of these mistakes, the following errors are committed:
a. The balance of office equipment is overstated by Rs.3,500
b. The balance of creditors account is understated by Rs.7,000
c. The total of the debit column of the trial balance is correctly stated.
d. The total of the credit column of the trial balance is understated by Rs.7,000.
e. If the total of the debit column of the trial balance is Rs.2,40,000 before rectifying error, the total of the credit column of the trial balance is Rs.2,33,000 (i.e., Rs.2,40,000 – Rs.7,000).