KEMBAR78
Trial balance and errors | PPTX
   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
   If both sides of the Trial Balance agree, it is an
    indication that at least the accounts prepared are
    arithmetically correct
   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
   These are:
   Errors that are not disclosed by the Trial Balance
   Errors that are disclosed by the Trial Balance
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
   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
   A sale of Rs.400 to Pinkal has been completely omitted
    from the accounts. The correcting entries should be:




        Original entry:   Pinkal A/c Dr 400
                              To Sales A/c  400


         Wrong entry:     No entry
   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
   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:




        Original entry:   Purchase A/c Dr 500
                               To C Lee A/c   500


         Wrong entry:     Purchase A/c Dr 500
                                To C Lai A/c    500
   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
   Office equipment purchased for Rs.1,000 in cash
    has been debited to an office expenses account. The
    correcting entries should be:




       Original entry:   Office Equipment A/c Dr 1000
                                      To Cash A/c         1000


        Wrong entry:     Office Expenses A/c Dr 1000
                                       To Cash A/c      1000
   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
   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:
RS.               Rs.

Purchases                                       2,200
   Sales                                                       2,200
Purchases and sales accounts were undercast by Rs.2,200, now corrected.
   This is made in the books of prime entry and carried
    forward to the ledger accounts
   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:




        Original entry:   Tushar Patel a/c Dr 1200
                                 To Bank a/c         1200


         Wrong entry:     Tushar Patel a/c Dr 1000
                                  To Bank a/c         1000
   This is where correct amounts are entered on the wrong
    side of each account
   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:



        Original entry:   Purchase A/c Dr 6000
                              To Chintan A/c 6000


         Wrong entry:     Chintan A/c Dr 6000
                             To Purchase A/c    6000
   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.
   When the trial balance does not agree, the
    amount of the difference is entered in a
    suspense account.
Rs.   Rs.

Total balances extracted   90    100
Suspense account            10
                           100   100
Trial balance and errors

Trial balance and errors

  • 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
  • 3.
    If both sides of the Trial Balance agree, it is an indication that at least the accounts prepared are arithmetically correct
  • 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
  • 5.
    These are:  Errors that are not disclosed by the Trial Balance  Errors that are disclosed by the Trial Balance
  • 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
  • 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
  • 9.
    A sale of Rs.400 to Pinkal has been completely omitted from the accounts. The correcting entries should be: Original entry: Pinkal A/c Dr 400 To Sales A/c 400 Wrong entry: No entry
  • 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
  • 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: Original entry: Purchase A/c Dr 500 To C Lee A/c 500 Wrong entry: Purchase A/c Dr 500 To C Lai A/c 500
  • 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
  • 13.
    Office equipment purchased for Rs.1,000 in cash has been debited to an office expenses account. The correcting entries should be: Original entry: Office Equipment A/c Dr 1000 To Cash A/c 1000 Wrong entry: Office Expenses A/c Dr 1000 To Cash A/c 1000
  • 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
  • 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:
  • 16.
    RS. Rs. Purchases 2,200 Sales 2,200 Purchases and sales accounts were undercast by Rs.2,200, now corrected.
  • 17.
    This is made in the books of prime entry and carried forward to the ledger accounts
  • 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: Original entry: Tushar Patel a/c Dr 1200 To Bank a/c 1200 Wrong entry: Tushar Patel a/c Dr 1000 To Bank a/c 1000
  • 19.
    This is where correct amounts are entered on the wrong side of each account
  • 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: Original entry: Purchase A/c Dr 6000 To Chintan A/c 6000 Wrong entry: Chintan A/c Dr 6000 To Purchase A/c 6000
  • 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.
  • 23.
    When the trial balance does not agree, the amount of the difference is entered in a suspense account.
  • 24.
    Rs. Rs. Total balances extracted 90 100 Suspense account 10 100 100