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.

No trial balance is not a conclusive proof of accuracy it can only be used to know the arithmetical accuracy their are various errors like error of principle, compensating error, error of complete omission which can not be detected through trial balance.

Errors of Commission are those errors which arise due to wrong recording, wrong posting, wrong carrying forward, wrong casting, wrong balancing, etc.

Balance of Suspense Account shows the net effect of errors which are still to be located and rectified. It will be shown on assets side (in case of debit balance) or on the liabilities side (in case of credit balance) of the Balance Sheet.

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.

He should open Suspense Account and transfer the difference in the Trial Balance on the debit side of the Suspense Account (if the credit side of the Trial Balance exceeds the debit side) or on the credit side of the Suspense Account (if the debit side of the Trial Balance exceeds the credit side).

Rectification of Errors: Errors, whether affecting the Trial Balance or not, must be detected and corrected. The procedure followed to rectify the errors committed and to set right accounting records is called Rectification of Errors.The objectives of rectifying errors are:

1. Preparing correct accounting records.
2. Ascertaining correct net profit or loss for the accounting period by preparing Profit and Loss Account with the correct figures.
3. Exhibiting a true and fair view of financial position of the concern at a particular date by preparing Balance Sheet with the correct accounting data.

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.

Suppose goods for ₹ 10,000 have been purchased from Dinesh 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 credit side of Dinesh nor on the debit side of purchase account.

Examples of Two-Sided Error:

1. Machinery purchased recorded in the Purchases Book.
2. Old furniture sold recorded as sales of goods.
3. A cash of sale of ₹ 1,700 to meena was posted to the credit of meena.

Examples of One-Sided Error:

1. Depreciation on computers not posted to Depreciation A/c.
2. Purchase of stationery of ₹ 500 posted twice to Stationery A/c.