Trial balance and Types of Errors
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The document discusses the trial balance and types of errors that may occur in accounting. A trial balance is a list of ledger account balances that ensures total debits equal total credits. An unequal trial balance indicates errors exist. Errors may be those not revealed by the trial balance, such as omissions, or those revealed, like errors of calculation or wrong posting. Revealed errors require a suspense account to balance the trial balance. Key errors include omissions, commissions, principles, compensating, original entry, and complete reversals.
Trial balance and Types of Errors
- 1. TRIAL BALANCE AND THE ERRORS OF THE TRIAL BALANCE PRESENTED By Nagarjuna BodiReddy Pavan Kumar M 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 2. Is a statement of balances remaining in each and every ledger account classified as to debit and credit entry balances According to the principle of double entry accounting system, the total of the debit side should be equal to the total of credit side TRIAL BALANCE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 3. If both sides of the Trial Balance agree, it is an indication that at least the accounts prepared are arithmetically correct TRIAL BALANCE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 4. By the same principle it can be taken that a disagreement in the Trial Balance is an indication that there are errors in the account prepared However, it should be noted that even an agreed Trial Balance is not a sure test of accuracy in the books of accounts TRIAL BALANCE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 5. These are: Errors that are not disclosed by the Trial Balance Errors that are disclosed by the Trial Balance CLASSIFICATION OF ERRORS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 6. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 7. 1. Errors of omission 2. Errors of commission 3. Errors of principle 4. Compensating errors 5. Errors of original entry 6. Errors of complete reversal ERRORS THAT ARE NOT DISCLOSED BY THE TRIAL BALANCE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 8. These are transactions that are completely omitted from the books of accounts Reasons may be that at the time of entering the books of accounts an invoice might have been misplaced, blown away or duplicate copies were not made ERRORS OF OMISSION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 9. A sale of Rs.400 to Pinkal has been completely omitted from the accounts. The correcting entries should be: Example Original entry: Wrong entry: Pinkal A/c Dr 400 To Sales A/c 400 No entry 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 10. This is where amounts are entered on the right side of the account but on the wrong debtor or creditors account This is due to the similarity in names Example, goods sold to B Banda were wrongly entered in B Bunda’s account amount being 450 000 ERROR OF COMMISSION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 11. A purchase of goods from C.Lee has been posted to the credit side of C.Lai’s account in error, amounting to Rs.500. The correcting entries should be: Example Original entry: Wrong entry: Purchase A/c Dr 500 To C Lee A/c 500 Purchase A/c Dr 500 To C Lai A/c 500 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 12. These errors offend against a basic idea or principle of separating revenue from capital expenditure or income Example, a calculator bought in business for use is entered in the purchases account instead of office equipment account ERRORS OF PRINCIPLE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 13. Office equipment purchased for Rs.1,000 in cash has been debited to an office expenses account. The correcting entries should be: Example Original entry: Wrong entry: Office Equipment A/c Dr 1000 To Cash A/c 1000 Office Expenses A/c Dr 1000 To Cash A/c 1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 14. This is where an error on the debit side of an account has been compensated for by a similar error on the credit side of another account COMPENSATING ERRORS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 15. The purchases account was undercast by Rs.2,200, and the sales account was also undercast by Rs.2,200. The correcting entries should be: Example 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 16. RS. Rs. Purchases 2,200 Sales 2,200 Purchases and sales accounts were undercast by Rs.2,200, now corrected. The journal 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 17. This is made in the books of prime entry and carried forward to the ledger accounts ERROR OF ORIGINAL ENTRY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 18. A payment of Rs.1,200 to a creditor, Tushar Patel, has been entered as both a debit and credit as Rs.1,000. The correcting entries should be: Example Original entry: Wrong entry: Tushar Patel a/c Dr 1200 To Bank a/c 1200 Tushar Patel a/c Dr 1000 To Bank a/c 1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 19. This is where correct amounts are entered on the wrong side of each account COMPLETE REVERSAL OF ENTRIES 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 20. The purchase of goods on credit from Chintan for Rs.6000 was entered on the debit side of Chintan’s account and the credit side of the purchases account. The correcting entries should be: Example Original entry: Wrong entry: Purchase A/c Dr 6000 To Chintan A/c 6000 Chintan A/c Dr 6000 To Purchase A/c 6000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 21. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 22. Errors of calculation, making errors in arithmetic Errors of omission of one entry or recording only half an entry, such as a debit without a corresponding credit or, vice versa Posting to the wrong side of an account. For example recording both entries on the same side such as two debits instead of a debit and a credit Errors in amounts, such as recording one or more amounts incorrectly. Errors disclosed by the Trial Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 23. When the trial balance does not agree, the amount of the difference is entered in a suspense account. Suspense Account 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 24. Rs. Rs. Total balances extracted 90 100 Suspense account 10 100 100 Trial Balance as at 31 December 2011 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
- 25. Thank you…. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25