Account 4 Marks Question

Errors of Principle: 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. These errors may be of two types-

1. When a Capital expenditure is treated as revenue expenditure: For example, if the purchase of furniture is treated as an ordinary purchase and is thus debited to purchase account instead of furniture account, it will be an error of principle. Similarly, if amount spent on the extension of building is debited to repairs account instead of building account, it is also an error of principle.
2. When a revenue expenditure is treated as capital expenditure: For example, if the amount spent on the repair of an old machinery is debited to machinery account instead of repairs account.

• Errors of omission.
• Errors of Commission.
• Compensating Errors.
• Errors of principle.
• Errors of posting in wrong Account.

Errors of Omission: 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. For example, suppose goods for ₹ 2,000 have been sold to Ram on credit and the transaction was omitted to be recorded in the books. The omission will not affect the Trial Balance in any way, because neither has it been recorded on the debit side of Ram's account nor on the credit side of sales account.

Plant and Machinery	Dr. Balances
Discount Allowed	Dr. Balances
Bank Overdraft	Cr. Balances
Sales	Cr. Balances
Interest Paid	Dr. Balances
Bad Debts	Dr. Balances

Purchases Return	Cr. Balances
Furniture	Dr. Balances
Bank Loan	Cr. Balances
Discount allowed	Dr. Balances
Capital	Cr. Balances
Drawings	Dr. Balances
Return Inwards	Dr. Balances
Bills Receivable	Dr. Balances

"A Trial Balance is a statement, prepared with the debit and credit balances of the Ledger Accounts to test the arithmetical accuracy of the books.”Objectives or Functions of Trial Balance:

1. To Ascertain the Arithmetical Correctness of Ledger Accounts: The Trial Balance enables one to establish whether posting and other accounting processes have been carried out without committing arithmetical errors.
2. To Help Prepare the Final Accounts: Financial Statements are prepared from the Trial Balance. Preparation of Financial Statements, therefore, is the second objective of preparing a Trial Balance.
3. Summary of Each Account: The Trial Balance is a summary of each Ledger Account. The ledger account may have to be referred only when more detail is required in respect of an account.
4. To help in the preparation of Final Accounts: As the trial balance contains the list of all the Ledger accounts, it provides a basis for further processing of accounting data, ie., preparation of final accounts namely Trading and Profit & Loss Account and a Balance Sheet.