Account M.C.Q (1 Marks)

Cash, the bank is a current asset and has a debit balance.
The drawing account's debit balance is contrary to the expected credit balance of an owner's equity account.
Where a sale has a credit balance so there is an error in the sale account.

When cash is paid for repairs of newly purchased old machine it is a capital expenditure and is debited to machinery account as it enhances the efficiency of the machinery as it has to be used for a longer period of time.
When this amount of repair is debited to repairs account, this is known as error of principle as capital expenditure is treated as revenue expenditure.
This error will not affect the trial balance because expense has been rightly debited though to the wrong account but the net effect remains the same, so the trial balance will tally.
This error surely affects the profit because it is a capital expenditure which is added to the value of the machinery, while here it has been written as revenue exoenditure which is deducted from the profit of the year. This in turn reduces the profit for the year.

A suspense account is an account in the general ledger in which amounts are temporarily recorded.
A suspense account is used when the proper account cannot be determined at the time the transaction is recorded.
The balance of suspense account is transferred to Balance sheet.

Bad-debts Recovered A/c

Wrong amount posted in the ledger Account.

All the three.

Error of principle is the violation to the basic principles of accounting. In this distinction between capital and revenue items is not made.
In this situation, the trial balance agrees and there is no error in the totaling of balance sheet or trial balance.
This is because, here error is only in method of solving while transactions and amounts are recorded in the right way.

Both debit and credit balances.

Errors of commission are the errors that are committed due to wrong posting of transactions, wrong totaling or balancing of the accounts, the wrong casting of the subsidiary books, or wrong recording of the amount in the books of original entry, etc.

For example Rs. 4,000 received from Shyam credited to Shyam Associates A/c. This constitutes an error of commission. Such an error by definition is of clerical nature and most of the errors of commission effect in the trial balance.

When an fundamental accounting principles are not followed while recording a transaction, it is an error of principle.
For example, treating capital expenditure as revenue expenditure or vice -versa.

Errors can be classified as:

1. Error of principle
2. Error of omission
3. Error of Commission
4. Compensating error

Error of principle is that when the basic rule of accounting is violated. In such case, there will be no difference in trial balance. This is an error of concept and not a clerical error. All other errors are classified as clerical error.

Mistake in transferring the balance of an account to the trial balance or omitting to write ,the balance of an account in the trial balance is error of omission.
When the transactions are partially or completely omitted from being recorded this is known as an error of omission.

What is uncommon in the trial balance is closing stock appears in the trial balance and statement of assets and liabilities. The trial balance has balances of personal, nominal and real accounts.

All Accounts.

Debit.

Typewriter A/C

A sale of ₹ 560 not recorded in Books at all.

Under balances method trial balance is prepared by showing the balances of all ledger accounts and then totalling up the debit and credit columns of the trial balance to assure their correctness. Balances Method is the most widely used method in practice.

Sale of office furniture is a capital profit or capital income, it cannot be entered as normal sale.
Error of principle is when basic accounting principle is not followed.
There is no distinction between capital and revenue items. Here capital income is treated as revenue income.
This error has no effect on the agreement of the trial balance as the right amount is debited or credited though to the wrong account but the net effect is the same.

When an fundamental accounting principles are not followed while recording a transaction, it is an error of principle.
For example, treating capital expenditure as revenue expenditure or vice -versa.
For example, purchase of machinery is debited to trading purchases. Its an error of principle.

If there is a non-agreement of trial balance the possible reasons could be the complete omission of posting, due to transposition of the posting or there has been a wrong posting either on debit or credit side.

Making an entry on wrong side is error of commission. An error of commission arise when there is wrong posting, wrong amount In posted, wrong account etc.

Trial balance is normally prepared at the end of the financial year to check whether all entries are posted in the ledger.
It is prepared by taking the balances of both debit and credit extracted from various accounts in a list.
If trial balance agrees, it proves that books are arithmetically correct.

800

There are golden rule of accounting for recording the transactions based on the type of account i.e personal a/c, real a/c and nominal a/c.

Based on such rules of accounting, assets account, expenses account, losses and drawings are always have a debit balance. Hence while preparing the trial balance, all such accounts are placed in the debit column of the trial balance.

2,700

Trial Balance may be defined as a statement which contains balances of all ledger accounts on a particular date.

180

Prepaid Expense.

Trial balance will not show any difference.

Trading Account.

There may be some mistakes in the recording of books.

After the preparation of ledgers, the next step is the preparation of trial balance.
After preparation of ledger accounts, all the balances of the ledger accounts are transferred to trial balance and it should tally.
The trial balance checks the arithmetical accuracy of the books of accounts.

All of the above.

When goods are destroyed by fire and the transaction is not recorded, this is known as error of omission. Error of omission is when a transaction is not recorded in the books at all, or recorded in journal but not posted in the ledger accounts.
Since transaction is not recorded at all, the effect is one debit as well as credit side. This implies trial balance will not be affected because both debit and credit aspect of the entry is missing. The omission of the transaction affects the net profit.
This is because, the entry for goods lost on fire affects the purchases account balance, and purchases account is incuded in trading account for calculating gross profit which is affected by any increase or decrease in the value of purchases account. The gross profit is transferred to profit and loss account for calculation of net profit.

Even if trial balance does not tally due to the existence of one sided errors, accountant has to carry forward his accounting process to prepare financial statements.
The accountant tallies his trial balance by putting the difference on shorter side as "suspense account". This is an account which is usually used to rectify one sided errors in the trial balance.

Wages paid for installation of machinery debited to wages account is an error of principle.
An error of principle is an accounting mistake in which an entry is recorded in wrong account, violating the fundamental principles of accounts.
Wages paid for installation of machinery should be recorded in machinery account and not wages account.

Machine A/C

The fundamental principle of the double entry system is that for every debit there will be a credit.
The statement in which the debit and credit balances are noted down and finally totaled up to ascertain if they are equal, is called trial balance.
In other words, trial balance is a statement of the debit and credit balances of the various ledger accounts which is prepared to check their arithmetical accuracy.

Errors of commission are the errors that are committed due to wrong posting of transactions, wrong totaling or balancing of the accounts, wrong casting of the subsidiarity books, or wrong recording of the amount in the books of original entry.
For example, Rs. 5,100 received from Mohan but credited to Sohan's A/c. This constitutes an error of commission. Such an error by definition is of clerical nature and most of the errors of commission affect the trial balance.

While recording the transaction, there is a possibility of having the error.
Since accounting is based on double entry system, for every debit there will be a credit.
Hence at any point of time, trial balance must be tallied. If trial balance dose not matches, there must be some clerical error.

Can be retrospective

If the gross profit has shown an increase as compared to the previous year, and in-depth analysis has to be carried out to find out the reasons for such higher profits. Below are the probable reasons of showing the higher gross profit:

1. Purchases are omitted while recording the transactions.
2. Closing stock is valued at higher prices.
3. Selling prices are increased in the current year without a corresponding increase in cost.

Legal expenses paid to Mohan need to be debited to legal expenses account not to the personal account. It is an error of commission.

Rectification entry has to be passed as:

When a complete accounting transaction is missed out in recording, it is an example of error of complete omission.
For example, sales of Rs.6500 on credit to Ram is not at all recorded in the books of account. It is an error of complete omission. There will be no affect on trial balance due to such error.

A statement.

Assets account always shows debit balance. Bank, cash and equipment are assets and will always have debit balance. These are to be shown in the debit side of trial balance.

Fixed assets are classified as tangible and intangible assets. All the assets will always show a debit balance.
Goodwill is a type of an intangible fixed asset which is shown in the balance sheet under the fixed assets.
Such an item will always show a debit balance as it is an asset for the business entity.

When one error of accounting is compensated by the other error, these are called compensating error. Compensating error nullify the affect and trial balance will not have any disagreement.
For example, an amount of Rs.1000 received from Ram is credited to his account as Rs.100 on the other hand, an amount of Rs.1000 paid to Sunil is debited to his account as Rs.100. A short credit of Rs.900 in Ram's a/c is neutralized by a short debit to Sunil's a/c.