Account 3 Marks Question

Under the Double Entry System, each transaction is recorded two times, once on the debit side of an account and again on the credit side of another account. It is because of this reason that the Trial Balance should always agree.

1. The trial balance provides a useful check upon the ledger postings. If a trial balance tallies, it is proved that the posting to the ledger accounts is correct. In other words, it ensures that both the aspects of each transaction have been posted into the ledger i.e., debit aspects have been posted on the debit side and the corresponding credit aspects on the credit side.
2. As the trial balance contains the list of all the Ledger accounts, it provides a basis for further processing of accounting data, i.e., preparation of final accounts namely Trading and Profit & Loss Account and a Balance Sheet.

When some fundamental principle of Accountancy is violated while recording a transaction, the error is termed as error of principle. These errors are committed in those cases where a proper distinction between capital and revenue items is not made, i.e., a capital expenditure is treated as a revenue expenditure or vice-versa.

If a transaction remains altogether unrecorded either in the Journal or in Subsidiary Books, it will be termed as an error of omission. Such an error will not affect the agreement of a Trial Balance, as neither the transaction has been entered on the debit side of an account nor on the credit side of any other account.

A trial balance is not an absolute or conclusive proof of the accuracy of the books of accounts since there may be certain types of errors which may remain undetected inspite of the agreement of trial balance.

While posting on the debit side of Anil's account, ₹ 80 are posted instead of ₹ 800 and while posting on the debit side of Sunil's account ₹ 800 are posted instead of ₹ 80. These two mistakes will nullify the effect of each other and inspite of the errors in both the accounts, the Trial Balance will still agree.

Only item No.(i) will affect the trial balance because it is error of posting in one account.
Item No. (ii), (iii) and (iv) will not affect the trial balance because these are errors of principle.

Compensating Errors: If the effect of one error is neutralised by the effect of some other error, such errors are called compensating errors. For example, while posting on the debit side of Anil's account, ₹ 50 are posted instead of ₹ 500 and while posting on the debit side of Sunil's account ₹ 500 are posted instead of ₹ 50. These two msitakes will nullify the effect of each other and in spite of the errors in both the accounts, Trial Balance will still agree.