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A trial balance is a statement prepared at the end of a definite accounting period, showing the totals of the debit and credit sides of each account of the business or their balances.

Errors mistakes committed by the book-keeper while writing of accounts.

It is an error where a transaction is completely ommited or not recorded in the books of accounts.

1. Errors of commission 

2. Errors of ommission 

3. Errors of principle 

4. Compensating errors

1. Errors of omission: When an entry gets omitted during recording in the book of original entry or during posting the transaction, then error of omission is committed. 

There are two types of errors of omission, viz: 

• Partial omission : When a transaction is correctly recorded in one side of account but is not recorded in the other side of the account. 

• Complete omission : When a transaction gets completely omitted to be recorded in the books, then it is the case of complete omission. Such omission does not affect the trial balance. 

2. Errors of principle : These refer to those errors that are committed when recording of transactions in the book of the original entry is done against the accounting, principle. These errors affect the trial balance. These errors are committed when proper distinction is not made between revenue income or expenditure and capital income or expenditure. 

3. Errors of commission: These refer to those errors that are committed when transactions are recorded with wrong amounts, wrong balance, wrong posting and/or wrong carrying forwarded is done. 

4. Compensating errors : When effects of one error are cancelled by the effects of another error of an equal amount, then compensating errors are committed. 

Items not appeared in trial balance are : 

1. Closing stock 

2. Salary payable 

3. Commission receivable 

4. Depreciation provision during the year

The items appeared in trial balance credit side are : 

1. Sales 

2. Purchase return 

3. Capital 

4. Interest received

There are two forms of trial balance viz.,

1. Statement form and
2. Account form.

Generally, a trial balance is prepared at the end of accounting year.

Correct option is (c) Trial balance

Correct option is (a) Annual accounts

Correct option is (c) After ledger

Correct option is (a) 1 year

Correct option is (c) Trial balance

Correct option is (d) ledger

(d) All accounts

It is an error where a transaction is not recorded strictly in accordance with principles of double entry system.

It is Temporary account opened for recording the difference in trial balance and written off after errors are located. 

Any errors affects both side aspects of transaction, (debit and credit) it is called two sides errors.

When errors or mistakes are detected and rectified, Suspense account will be closed.

Correct option is (b) Balance method

Correct option is (c) Assets and Expenses accounts

Correct option is (d) Trial balance

Trial balance is prepared on the basis of all the accounts of ledger.

Trial balance is prepared before the preparation of the final accounts.

Trial balance is prepared to find out mathematical accuracy of the business transactions recorded in the books of accounts and to facilitate preparation of the final accounts.

Errors of principle refer to those errors that are committed when recording of transactions is done against the accounting principle. Below given are the examples of error of principle. 

a. Wages paid for construction of building debited to Wages Account. 

b. Amount spent on repair of machinery debited to Machinery Account.

1. Purchase of furniture from vishwantha Rs.10000 but it is wrongly entered in purchase book. 

2. Sale of old machinery Rs. 1000 wrongly entered in to sales a/c.

(i) To Final accounts or importance of suspense account. 

(ii) To rectify the mistakes and correct the trial balance.

The ineffectiveness of the trial balance is termed as the limitations of trial balance. 

The various limitations of the trial balance are given below:

• It does not assist to detect errors that arise if any entry is not recorded in the journal. Such errors are termed as the errors of Complete Omission. 

• If the effect of one error is canceled by the effect of another error, then it cannot be ascertained by the trial balance. Such types of errors are termed as compensatory errors, which are rare to find. 

• If correct amount is posted in the correct side; however, in the wrong account and if wrong amount is posted in the wrong side, but in the correct account, then the trial balance fails to reflect these errors. 

• If there arises any error of principle, like capital expenditure mistakenly regarded as revenue expenditure or vice-versa, then such errors may not be revealed in form of mismatch between the two columns of the Trial balance.

• If any transaction is recorded wrongly in the looks of original entry, then such mistakes lead to the errors of recording which are not revealed by trial balance.

1. Goods purchase for Rs. 9250 from Srinivas has been entered in the purchase book as Rs. 9520 

2. Goods sold to asha for Rs. 2000 has been wrongly posting to Ravi’s a/c. 

The errors that lead to the differences in the trial balance are termed as one-sided errors. These are those errors that affect only one account. 

Below are given the errors that cause difference in the trial balance: 

a. Wrong casting of any account, this is termed as the error of casting. 

b. Wrong carrying forward of the balances from previous year’s books or from one end of page to another. These types of errors are termed as the errors in carrying forward. 

c. If entries are posted in the wrong side of accounts. 

d. Posting of a wrong amount in account, this is termed as the error of posting. 

e. If entries are recorded partially, i.e., the entries are not recorded completely, then due to the error of partial omission, trial balance.

When trial balance does not agree, i.e., when the total of the debit column does not match that of the credit column, then the difference of the trial balance is transferred to a temporary account in order to avoid delay in preparation of the financial statements. This temporary account is termed as suspense account. 

If the debit column falls short of the credit column, then the suspense account is debited and if the credit column falls short of the debit column then the suspense account is credited. If all the errors are detected and rectified, then the suspense account automatically gets closed (i.e. becomes zero).

However, if still there exists any difference, then it should be transferred to the balance sheet. If the suspense account shows a debit balance, then it is shown in the assets side and if the suspense account shows a debit balance, then it is shown in the assets side and if the suspense account shows a credit balance, then it is shown in the liabilities side of the balance sheet.

Errors of principle refer to those errors that are committed when recording of transactions in the original book of entry is done against the accounting principle. These errors are not reflected in the trial balance. These errors are committed when proper distinction is not made between capital expenditure and revenue expenditure, or vice versa or between capital income and revenue income or vice versa. Th following examples will illustrate the process of understanding and rectification of such errors.

Example 1 : 

Wages paid for construction of building are debited to Wages account. 

Wrong entry made is:

Wages A/c Dr

To cash A/c 

(Wages paid in cash)

In this case, wages paid for the construction of building should be treated as a capital expenditure and accordingly should be debited to the building account. However, the wages account is wrongly debited. The correct entry that should have been made is:

Building A/c or To cash A/c

(wages paid for construction of building)

The rectifying entry should be :

Building A/c Dr

To Wages A/c

(Wages paid for construction of building was debited to wages account, now rectified)

Example 2:

The sale of old machinery recorded as sales.

wrong entry made:

Cash A/c Dr

To sales A/c

(Sales of old machinery, recorded as sales)

In this case, the sale of old machinery should not be recorded as sales; 

in fact the Machinery Account should be credited.

The correct entry that should have been made is:

Cash A/c Dr

To machinery A/c

(Old machinery sold for cash)

In order to rectify this error, sales account will be debited, as it is wrongly credited and machinery will be credited, as it willnot be recorded in the books.

The rectifying entry will be:

Sales A/c Dr

To Machinery A/c

(Sales of old machinery recorded as sales, now rectified).

Trial balance of m/s subhas publishing House as on 31-3-2011

The important purposes for the preparation of trial balance are explained with the help of the following points: 

• Ascertaining the arithmetical accuracy : When the total of all debit balance accounts are equal to all credit balance accounts, it is assumed that at least posting from journal to the respective accounts is arithmetically correct. 

• Summarising the ledger accounts: Trial balance acts as a consolidated statement, providing a comprehensive list of all the accounts. Thus, a trial balance provides a summarised version of each account. 

• Preparing final accounts : As the trial balance provides a summarised version of each account, so different accounts can be directly transferred to trading, profit and loss accounts, and balance sheet without referring to different ledgers. 

• Locating and rectifying errors : If the trial balance does not agree, it indicates the occurrence of arithmetical error, which can be easily located. However, trial balance only helps in locate and rectify arithmetical error and no other types of errors. 

The debit and credit side total of the trial balance must be always equal.

Trial balance is prepared with the following objectives:

1. Test of arithmetical accuracy: 

Trial balance is the means by which the arithmetical accuracy of the book – keeping work is checked. When the totals of debit column and credit column in the trial balance are equal, it is assumed that posting from subsidiary books, balancing of ledger accounts, etc. are arithmetically correct. However, there may be some errors which are not disclosed by trial balance

2. Basis for preparing final accounts: 

Financial statements, namely, trading and profit and loss account and balance sheet are prepared on the basis of summary of ledger balances obtained from the trial balance.

3. Location of errors: 

When the trial balance does not tally, it is an indication that certain errors have occurred. The errors may have occurred at one or more of the stages of accounting process, namely, journalising or recording in subsidiary books, totalling subsidiary books, posting in ledger accounts.

Balancing the ledger accounts, carrying ledger account balances to the trial balance and totalling the trial balance columns, etc. Hence, the errors should be located and rectified before preparing the financial statements.

4. Summarised information of ledger accounts: 

The summary of ledger accounts is shown in the trial balance. Ledger accounts have to be seen only when details are required in respect of an account.

The following are various steps that an accountant takes to locate the errors in the trial balance. 

a. Re-totalling of the debit and the credit columns of the trial balance to locate the difference in the total of both the columns. 

b. Checking whether any account is omitted to be recorded with the exact difference amount. 

c. Half the difference, then check whether any amount is posted in the wrong column of the trial balance.

d. Divide the difference by 9, if it is competely divisible, it is an error of transposition of figure, i.e. 546 is written as 645. 

e. If there exist difference especially of Rs. 1, Rs. 10, Rs. 100, Rs. 1000, etc., it suggests that the casting of subsidiary books should be checked once again. 

f. If difference still exists and it is not possible to detect the reason for the difference, then for the time being, the difference is transferred in the suspense account in order to proceed further. Otherwise a complete checking is suggested.

• To know the arithmetical accuracy of the books of accounts. 

• To identify any mistakes in the books of accounts entered. 

• It contains all the accounts in a summarised from.

 • To prepare final accounts of a concern.

The principle of preparation of trial balance is debit entry have automatic credit on some other account. 

Characteristics of trial balance :

1. The trial balance is a statement, not an account.
2. The trial balance is prepared on a definite date at the end of a definite accounting period.

Errors of commission refer to those errors that are committed when transactions are recorded with wrong amounts; wrong balancing or wrong posting and / or wrong carrying forwarding is done. 

Examples of error of commission are. 

a. Goods purchased worth Rs. 20,000 on credit are recorded in the purchases book as Rs. 1000. 

b. Total of sales book is carried forward as Rs. 50,000 instead of Rs. 5,000.

Balancing method is popular in practice for preparation of a trial balance.

Following are two objectives of trial balance :

1. Arithmetical accuracy: It can be verified that, accounts written are correctiy and properly written from transactions and without any arithmetical error.

2. Locate error and their rectification: If the total of debit and credit balances of a trial balance is not same, errors are to be located and to rectify them in time.

It is a extraction of ledger balance 

• It is prepared on a particular date. 

• It is not the account it is a statement of balances.

Following are the methods of preparing a trial balance :

1. Totalling method: In this method, the balance is not to find out, but total of the amounts of debit and credit sides of all the accounts will be made. Then, in a separate page or in the register, the totals of the both the sides of an account are written with an account name. If the account is squared up (totals of both sides are same), then also the total of both the sides are considered. If the totals of the debit and credit side of the accounts in a register are same or equal, then it can be said that accounts written are arithmetically correct. And if there is a difference in the totals of accounts in a register, then error is to be found out.

2. Balancing method : According to this method, the balance of each account is to be found out. Then, on a paper, in the predecided format, debit and credit balance are to be written. Afterwards, the total of debit balances and the total of credit balances are to be found out and totals of the both debit and credit balances should get tallied. This method is more popular for preparing a trial balance.

The two different methods to prepare trial balance: 

a. Totals method : According to the totals method, the total of debit and credit sides of an accounts is shown in the debit and credit columns of the trial balance. If the total of the debit column and the total of credit column of trial balance are equal, then the trial balance is said to agree, otherwise not.

b. Balance method : According to the balance method, the balance of ledger accounts is shown in the debit and credit column of the Trial Balance. The balance of ledger may be either debit balance or credit balance. In the former case, the debit side of an account exceeds its credit side; whereas, in the latter case the credit side exceeds the debit side of the account. The sum total of the balances in the debit column of the trial balance must be equal to the sum total of the balances in the credit columns of the trial balance. It is a commonly used method. 

c. Total cum balance method : It is a combination of both of the above methods, i.e., totals method and balance method.

There are two methods of preparing trial balance :

1. Totalling method and
2. Balancing method.

1. Balance method 

2. Total method 

3. Balance and total (mixed) method.