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Unit-11 Trial Balance

In this unit you will study about the preparation of Trial Balance.

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Is the Trial Balance a conclusive proof of the accuracy of the books of account? Discuss the errors not disclosed by the Trial Balance.

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Learning Pundits Content Team

Written on Jun 25, 2019 4:10:08 PM

As stated earlier, the Trial Balance is only a reasonable proof (not a conclusive proof) of the arithmetical accuracy of accounting entries. There is no guarantee that 93 when the Trial Balance has tallied, there will be no errors left. As a matter of fact, there are a number of errors which do not affect the Trial Balance at all. They are:

1.Errors of Principle : When a transaction has not been recorded as per the rules of debit and credit, or some other accounting principle has been ignored, the errors so arising are called 'Errors of Principle'. Example of such errors are:

i.A credit purchase of a fixed asset recorded in the Purchases Journal instead of the Journal Proper: This results in debiting the Purchases Account instead of the concerned fixed asset account. It means that a capital expenditure has been treated as a revenue expenditure. This is an error of principle. This does not disturb the debit-credit correspondence. Hence, the Trial Balance will not be affected.

ii.An expenditure Incurred on repairs of machinery debited to Machinery Account: As per rules it should have been debited to Machinery Repairs Account, as it is a revenue expenditure. Debiting to Machinery Account amounts to treating it as a capital expenditure. It is therefore an error of principle. This also does not affect the Trial Balance because the debit has been duly recorded, though in the wrong account.

iii.Salary paid to Shyam recorded in the Cash Book as a payment to Shyam. This results in debiting Shyam's personal account instead of the Salaries Account. This is also an error of principle and does not affect the Trial Balance.

2)Errors of Omission : When a transaction is completely or partially omitted to be recorded in books of account, it is called an 'Error of Omission'. If the transaction is omitted to be recorded in the subsidiary books or its posting is completely omitted, it is called an 'Error of Complete Omission'. If, however, the posting is done in one account, but omitted to be done in the other, it is called an 'Error of Partial Omission'. For example, if a credit purchase of goods from Shyam is not recorded in the Purchases Journal or a credit purchase of furniture from Ram is duly recorded in the Journal Proper but no posting is done in any of the two accounts involved, then these will be termed as errors of complete omission. If the purchase of goods from Shyam is recorded in the Purchases Journal but is omitted to be posted in Shyam's Account, it will be called an error of partial omission. Other examples of partial omission are: omission in carrying forward the total from one page to the other, omission to balance an account, and so on. The errors of complete omission do not affect the Trial Balance. But the errors of partial omission would certainly cause disagreement of the Trial  Balance because they would lead to either short debit or short credit.

3)Some Errors of Commission : When an error is committed in recording a transaction in the subsidiary book with a wrong amount, or is committed in posting it to a wrong account or to the wrong side of an account, it is called an 'Error of Commission'. Errors like double posting, wrong totalling of an account, wrong carry forward, wrong balancing, etc., are also regarded as errors of commission. Such errors will generally affect the Trial Balance. But, if an error of commission is committed while recording a transaction in any of the subsidiary books, it shall not affect the Trial Balance because both the debit and the credit are equally affected. Suppose, a machine of R.s. 5 ,000 purchased on credit from Gautam is recorded in the journal for R.s. 5,500. It means both the debit and the credit have been recorded for R.s. 5 ,500. Hence, the Trial Balance remains unaffected.

4)Compensating Errors : Those errors which nullify the effect of each other are called 'Compensating Errors'. In other words, compensating errors refer to such a group of errors wherein the effect of one error is compensated by the effect of another error or errors. Such errors do not affect the Trial Balance. For example, while posting an entry of Rs. 200 to the debit of Ram's personal account, we wrongly wrote Rs. 400. Then, while posting an entry of Rs. 500 to the debit of some other account we wrote Rs. 300. the first error will result in a higher debit of Rs. 200 whereas the second error will result in a lower debit of Rs. 200. Thus, the effect of the first error is nullified by the effect of the second error. So the Trial Balance will not be affected. Take another example. The Purchases Journal is overcast by Rs. 1 ,OOO which means the Purchases. Account will be debited in excess by Rs. 1,000. The Sales Journal also, by mistake, is overcast by Rs. 1,000 which means the Sales Account will be credited in excess by Rs. 1,000. These two mistakes, together, result in excess debit of Rs. 1,000 as well as an excess credit of Rs. 1,000. Thus, they cancel out each other and the Trial Balance remains unaffected.