Trial Balance and Rectification of Errors: Learning Objectives

CHAPTER 4
Trial Balance and Rectification of Errors
LEARNING OBJECTIVES
After studying this chapter, you will be able to:
state the meaning of trial balance;
check the accuracy of accounting records;
prepare the trial balance;
identify the nature of balances in various accounts;
state the different types of errors;
detect and rectify errors; and
appreciate the need for preparing suspense account.
114
ACCOUNTANCY
In the previous chapters, you have

learnt how to record and classify the
transactions in the various accounts
along with balancing there of. All
balances of the accounts are listed in
a statement, called trial balance. It is
a summary statement of all balances.
This summary of balances enables us
to check the arithmetical accuracy of
the transactions recorded in the ledger
accounts. Since every debit has a
corresponding credit, the total of debits
should be equal to the total of credits
in the trial balance. This chapter
explains the meaning and process of
preparation of trial balance. It is
followed by a discussion of different
types of errors and their rectification.
4.1 Meaning of Trial Balance
A trial balance is a summary of
balances of all accounts recorded in
the ledger. The format of trial balance

in given in fig. 4.1.
Trial Balance of as on 31st March 2002
Account
Code
Account
Title
Debit
Amount
Rs.
Amount
Rs.
Fig. 4.1 : Showing Format of a Trial Balance
The trial balance is prepared at the

end of a chosen period which may
either be monthly, quarterly, halfyearly or annually or as and when
required. Since, every debit should
have a corresponding credit as per the
rules of the double entry system, the
total of the debit and credit balances
should tally. In case there is a
dif ference, one has to check the
correctness of the balances brought
Trial Balance as at 31 March 2002

Account
Code
Account Title
001
002
003
004
005
006
007
008
009
0.10
0.11
0.12
Cash
Capital
Bank
Office Equipment
Office Car
Insurance of Car
Purchases
Creditors
Sales
Debtors
Drawings
Salary
Total
Debit
Amount
Rs.
Credit
Amount
Rs.
45,000
5,00,000
2,05,500
60,000
1,60,000
9,000
1,10,000
30,000
1,12,000
40,000
5,000
7,5000
6,42,000
Fig. 4.2 : Trial Balance for Illustration 25 Chapter 3 on page 95
6,42,000
TRIAL BALANCE AND RECTIFICATION OF ERRORS
forward from the respective accounts.

This type of checking of accounts leads
to ascertainment of arithmetical
accuracy of the balances of various
accounts in a summarized form.
Besides checking the arithmetical
accuracy, trial balance also aims at
ascertaining the correctness of the
nature of balances in relation to the
type of account. All assets, expenses,
receivables shall have debit balances.
Similarly, all liabilities, revenues,
payables will have credit balances
(figure 4.2).
4.2 Objectives of Preparing a Trial
Balance
In order to pr ovide a summary
statement view of the balances of
various accounts, we need to prepare
the trial balance. This also indicates
the correct nature of the balances of
various accounts. A trial balance is
prepared to fulfill the following
objectives:
check the arithmetical accuracy

of the ledger accounts;
help in locating errors; and
provide a basis for preparing the

financial statements.
These objectives are explained in
detail hereunder:
4.2.1 To Check the Arithmetical
Accuracy of Accounts
A trial balance is prepared to check
whether all debits and the
corresponding credits are properly
recorded in the ledger or not. When
the totals of all the debits and credits
115
in the trial balance are equal, it is

assumed that the posting and
balancing of ledger accounts is
arithmetically accurate.
4.2.2 To Help in Locating Errors
Whenever the trial balance does not
tally, the accountant know that errors
have crept in at the stage of recording,
posting, balancing, or transfer of
balances. The accountant, at this
stage, is faced with the problem of
errors. It is immaterial whether the
amount of difference is small or large.
Even a small amount of difference
requires careful attention to be paid
to achieve accuracy in accounts.
Once the errors are detected and
located, these are rectified and then
the corrected
trial balance is
prepared.
4.2.3 To Provide a Basis for the
Preparation of Financial
Statements
Since the balances of all accounts
appear in the trial balance, it provides
a basis for the preparation of the
financial statements. A tallied trial
balance, therefore becomes the first
step in the preparation of financial
statements.
All r evenues and expenses
accounts from trial balance, are
transferred to the trading and profit
and loss account. All assets,
liabilities and capital accounts along
with the balance of the profit and loss
account are shown in the balance
sheet.
116
4.3 Detection of Errors Revealed

by the Non-agreement of Trial
Balance
If the trial balance does not tally, the
accountant should initiate the
following steps to detect and locate the
errors:
Recast the totals of debit and

credit columns of the trial
balance.
Compare the account head/title

and amount appearing in the
trial balance, with that of the
ledger to detect any difference in
amount or omission of an
account.
Compare the trial balance of the

current year with that of the
previous year to check additions
and deletions of any accounts
and also verify whether there is
a large difference in amount,
which is neither expected nor
explained.
Re-do and check the correctness

of balances of individual
accounts in the ledger.
Re-check the correctness of the

posting in accounts from the
books of original entry.
If the difference between the

debit and credit columns is
divisible by two, there is a
possibility that an amount equal
to one-half of the difference may
have been posted to the wrong
side of another ledger account.
For example, if the total of the
debit column of the trial balance
exceeds by Rs.1,500, it is quite
possible that a credit item of
ACCOUNTANCY
Rs.750 may have been wrongly

posted in the ledger as a debit
item. To locate such errors, the
accountant should scan all the
debit entries of an amount of Rs.
750.
The difference may also indicate
a complete omission of a
posting. For example, the
difference of Rs.1,500 given
above may be due to omissions
of a posting of that amount on
the credit side. Thus, the
accountant should verify all the
credit items with an amount of
Rs.1,500.
If the difference is a multiple of
9 or divisible by 9, the mistake
could be due to transposition of
figures. For example, if a debit
amount of Rs. 459 is posted as
Rs.954, the debit total in the
trial balance will exceed the
credit side by Rs. 495 (i.e. 954459 = 495). This difference is
per fectly divisible by 9. A
mistake due to wrong placement
of the decimal point may also be
checked by this method. Thus,
a difference in trial balance
divisible by 9 helps in checking
the errors for a transpose
mistake.
4.4 Preparation of the Trial Balance

The first step in the preparation of the
trial balance is to balance all ledger
accounts. This is done after posting of
all the entries from books of original
entry to the ledger. Balancing of an
account is done by putting the
difference between the two sides of an

account on the side, which is short.
This leads to the equalization of two
sides of an account. A trial balance has
four columns. The first column is the
account code/number, the second
Account
Code
column is the title/name of the

account, the third and fourth columns
are the debit and credit columns
respectively where the amount of
balance of each account is entered. It
is shown in fig. 4.3.
Name of the Account
117
Debit
Amount
Rs.
Capital Account
Fixed Asset Accounts:
Land and Buildings
Plant and Machinery
Equipment
Furniture and Fixtures
Current Asset Accounts:
Cash in Hand
Cash at Bank
Accounts Receivables
Bills Receivable
Stock of Raw Materials
Work in progress
Stock of Finished goods
Purchases
Carriage inwards
Carriage outwards
Sales
Sales Returns
Purchase Returns
Interest paid
Commission/Discount received
Salaries
Long term loan
Bills Payable
Accounts payable
Outstanding Salaries
Prepaid Insurance
Outstanding interest earned
Advances from Customers
Drawings
Reserves and Surplus
Provision for bad and doubtful debts

Total
Fig. 4.3 : Illustrative Trial Balance
Credit
Amount
Rs.
xxx
xxx
118
ACCOUNTANCY
Illustration 1
Ajay started a small general store and
agreed to pay a rent of Rs.500 p.m.
His uncle provided him with some
furniture for the shop.He invested his
personal savings of Rs. 25,000 and his
father gave him Rs.50,000. He named
his shop as Asha General Store. The
shop was inaugurated on 1 January
2002. As Ajay is educated he wanted
to run his business in a professional
way. He requested his friend Anand to
prepare books of account for the shop.
The following were the transactions of
the stores in the first week:
January 2002
1
Purchased
goods
worth
Rs.10,000
from
Ganesh
Enterprises by paying cash.
Made cash sales of Rs.7,500 to
people who attended the inauguration. Opened an account with
United Bank of India by depositing Rs.20,000.
Made payment of Rs.2,000 to a
caterer who supplied refreshments during the inauguration
ceremony. Cash purchases
made for Rs.30,000.
Purchased goods worth Rs.35,000

from Subhash and Co. paying
Rs.5,000 cash and remaining on
credit with a promise to pay in
30 days. Made a sale to Rajaram
for Rs.8,000 on account. Cash
sales were also made for Rs.26,000.
4 Paid license fees of Rs.400.
Rent Rs.500. Purchases worth
Rs.7,500. Made cash sales for
Rs.9,600
5 Made a payment to Subhash
and Co., Rs.5,000 by cheque.
Paid postage Rs150. Withdrew
for personal use Rs.7,000.
Sales to Mary Export House
Rs.47,600. Cash sales were for
Rs.3,300
6 Paid electricity charges Rs.550
and Rs.250 to Raja who agreed
to clean the shop and also
worked as a shop assistant.
7 Purchased furniture and fittings
from Lokesh Enterprises on
credit for Rs. 36000.
Record the above transactions in
various subsidiary books and post
them to the relevant ledger accounts
and prepare the trial balance after
balancing the various ledger accounts.
Solution
Books of Asha General Stores
Cash Book
Receipts
Payments
Cash - 001,Bank- 002
Date
2002
Particulars
Jan 1
1
1
Capital
Loan from father
Sales
Total c/f
L.F.
Cash
(Rs.)
25,000
50,000
7500
82,500
Bank
(Rs.)
Date
2002
Particulars
Jan 1
Jan 1
Jan 2
Purchases
Bank
Purchases
Total c/f
LF
Cash
(Rs.)
10,000
20,000
30,000
60,000
Bank
(Rs.)

Jan
Total b/f
82,500
Cash
3
4
5
Sales
Sales
Sales
119
Jan
Total b/f
20,000
26,000
9,600
3,300
Business
expenses
Purchases
5,000
License fee
400
Rent
Purchases
Subhash & Co.
Postage
Drawings
Electricity
Wages
Balance c/f
1,21,400
20,000
Purchases Book
Date
2002
Particulars
L.F
Jan 3
Subhash and Co.
Amount
Rs.
30,000
Date
Jan 3
Jan 5
Rajaram
Mary Export
House
L.F
Particulars
2002
Jan 2
Sales Book
Particulars
2,000
500
7,500
5,000
150
7,000
550
250
38,050
15,000
1,21,400
20,000
Journal Proper
30,000
Date
2002
60,000
Amount
Rs.
8,000
47,600
L.F
Debit
Amount
Rs.
Furniture &
Fixtures
Lokesh
Enterprises
(Purchased
furniture)
36,000
Total
36,000
Credit
Amount
Rs.
36,000
36,000
55,600
Capital Account 003
Dr.
Date
2002
Cr.
Particulars
J.F.
Amount
Rs.
Date
2002
Particulars
Jan1
Cash
J.F.
Amount
Rs.
25,000
Drawings Account 004

Dr.
Date
2002
Jan 5
Cr.
Particulars
Cash
J.F.
Amount
Rs.
7,000
Date
2002
Particulars
J.F.
Amount
Rs.
120
ACCOUNTANCY
Purchases Account 005

Dr.
Cr.
Date
2002
Particulars
Jan 1
Jan 3
Cash
Subhash & Co.
(creditors)
Cash
Cash
Cash
Jan2
Jan3
Jan4
J.F.
Amount
Rs.
Date
2002
Particulars
10,000
30,000
3 Jan
31 Dec
Balance c/f
J.F.
Amount
Rs.
82,500
30,000
5,000
7,500
82,500
82,500
Loan Account 006

Dr.
Date
2002
Cr.
Particulars
J.F.
Amount
Rs.
Date
2002
Particulars
Jan 1
Cash
J.F.
Amount
Rs.
50,000
Subhash and Company Account 007

Dr.
Date
2002
Cr.
Particulars
J.F.
Jan 5 Bank
31 Dec Balance c/f
Amount
Rs.
Date
2002
Particulars
5,000
25,000
Jan 2.
Purchases
J.F.
Amount
Rs.
30,000
30000
30000
Mary Export House Account 008

Dr.
Cr.
Date
2002
Particulars
Jan 5
Sales
J.F.
Amount
Rs.
47,600
Date
2002
Particulars
Dec 31
balance c/f
J.F.
Amount
Rs.
47,6000
47,6000
47,6000
Electricity Account 009

Dr.
Date
2002
Jan 6
Cr.
Particulars
Cash
J.F.
Amount
Rs.
550
Date
2002
Particulars
J.F.
Amount
Rs.
121
Postage Account 010

Dr.
Cr.
Date
2002
Particulars
Jan 5
Cash
J.F.
Amount
Rs.
Date
2002
Particulars
J.F.
Amount
Rs.
150
License Fees Account 011
Dr.
Date
2002
Jan 4
Cr.
Particulars
J.F.
Amount
Rs.
Cash
Date
2002
Particulars
J.F.
Amount
Rs.
400
Wages Account 012
Dr.
Cr.
Date
2002
Particulars
Jan 6
Cash
J.F.
Amount
Rs.
Date
2002
Particulars
J.F.
Amount
Rs.
250
Furniture Account 013
Dr.
Cr.
Date
2002
Particulars
Jan 2
Lokesh
Enterprises
J.F.
Amount
Rs.
Date
2002
Particulars
J.F.
Amount
Rs.
36,000
Lokesh Enterprises 014

Dr.
Date
2002
Cr.
Particulars
J.F.
Amount
Rs.
Date
2002
Particulars
Jan 2
Furniture
& Fitting
J.F.
Amount
Rs.
36,000
Sales Account 015

Dr.
Date
2002
Cr.
Particulars
31 Dec Balance c/f
J.F.
Amount
Rs.
1,02,000
1,02,000
Date
2002
Particulars
Jan
Jan
Jan
Jan
Jan
Jan
Cash
Cash
Rajaram
Cash
Cash
Mary Export
House
1
3
4
4
5
5
J.F.
Amount
Rs.
7,500
26,000
8,000
9,600
3,300
47,600
1,02,000
122
ACCOUNTANCY
Rent Account 017

Dr.
Cr.
Date
2002
Particulars
Jan 4
Cash
J.F.
Amount
Rs.
Date
2002
Particulars
J.F.
Amount
Rs.
500
Rajaram Account 018
Dr.
Cr.
Date
2002
Particulars
Jan 3
Sales
J.F.
Amount
Rs.
Date
2002
Particulars
J.F.
Amount
Rs.
8,000
Trial Balance of Asha General Stores as on 7 January 2002

Account
Account
Title
Debit
Amount
Rs.
01
02
03
04
05
06
07
08
09
010
011
012
013
014
015
016
017
018
Cash
Bank
Capital
Drawings
Purchases
Loan A/c
Subash and company
Mary Export House
Electricity
Postage
License
Wages
Furniture and fittings
Lokesh Enterprises
Sales
Business expenses
Rent
Rajaraman
38,050
15,000
Total
Illustration 2
Following balances of ledger accounts
have been obtained from which you are
required to prepare a trial balance:
Cash Rs.41,733; Expenses Rs.12,150;
Credit
Amount
Rs.
25,000
7,000
82,500
50,000
25,000
47,600
550
150
400
250
36,000
36,000
1,02,000
2,000
500
8,000
2,38,000
2,38,000
Sales Rs.1,46,616; Fixed Assets

Rs.12,000; Purchases Rs 1,10,850;
Accounts Receivables Rs.24,436;
Capital Rs. 50,000; Creditors Rs.8,553;
Merchandise Rs 4,000.
Solution
Account Title
Debit
Amount
Rs.
Cash
Expenses
Fixed Assets
Sales
Purchases
Accounts
Receivable
Merchandise
Capital
Creditors
1,10,850
24,436
Total
2,05,169
Credit
Amount
Rs.
41,733
12,150
12,000
1,46,616
4,000
50,000
8,553
2,05,169
4.5 Errors
The trial balance is prepared to check
the arithmetical accuracy of accounts.
If the trial balance does not tally, it
implies that there are arithmetical
errors in the accounts which require
location, detection and rectification
thereof. Even if the trial balance tallies,
there may still exist some errors. There
are two types of errors: (a) errors which
are not revealed by the trial balance,
and (b) errors which are revealed by
the trial balance. Errors may happen
at any of the following stages of the
accounting cycle.
A. At
1.
2.
3.
Recording Stage
Errors of principle
Errors of omission
Errors of commission
B. At Posting Stage
1. Error of omission
i. Complete
ii. Partial
2. Error of commission
i. Posting to wrong account
123
ii. Posting on the wrong side

iii. Posting of wrong amount
C. Balancing Stage
1. Wrong totaling
2. Wrong balancing
D. Preparation of Trial Balance
1. Error of Omission
2. Error of Commission
i. Taking wrong amount
ii. Taking wrong account
iii. Taking to the wrong side
Errors can be classified into the
following four categories on the basis
of the nature of errors and explained
here under.
i. Errors of commission
ii. Errors of omission
iii. Errors of principle
iv. Compensating (offsetting)
errors.
4.5.1 Errors of Commission
These errors by definition, are of
clerical nature. These errors may be
committed at the time of recording
and/or posting. At the time of
recording, the wrong amount may be
recorded in journal which will be
carried throughout. Such errors will
not affect the agreement of the trial
balance. These errors may also be
committed at the time of posting, by
way of posting wrong amount, to the
wrong side of an account or in the
wrong account. The errors resulting in
posting to wrong account will not affect
agreement of trial balance, whereas,
other errors of posting will resulting
disagreement of trial balance. For
example, an amount of Rs.10,000
124
received from customer (Debtor) is

correctly recorded on the debit side of
the cash book but while posting, the
customers account is credited with
Rs.1,000. This is an error, which is
committed at the time of posting, by
posting wrong amount to the account.
This will result in disagreement of trial
balance, since, the credit total of the
trail balance will be short by Rs. 9,000.
4.5.2 Errors of Omission
The errors of omission may be
committed at the time of recording the
transaction in the books of original
entry or while posting to the ledger. An
omission may be complete or partial.
Such errors are known as errors of
omission. For example, Machinery
purchased for Rs. 50,000 by issuing a
cheque is recorded first in the credit
side of cash book, in the bank column.
Suppose it is not posted to the debit of
machinery account, it is an error of
partial omission. The trial balance will
not tally. Suppose the transaction is
not entered in the cash book and hence
ignored completely, this is a case of
complete omission. It means as if the
transaction has not taken place at all.
It will not affect the trial balance and
hence the trial balance will tally. This
is true only in case of complete
omission.
4.5.2 Errors of Principle
Accounting entries are recorded as per
the generally accepted accounting
principles. If any of these principles are
violated or ignored, errors resulting
from such violations are known as
ACCOUNTANCY
errors of principle. As an illustration,

Periodicity
principle
requires
maintaining proper distinction
between capital and revenue items. An
error of principle may occur due to
incorrect classification of expenditure
or receipts between capital and
revenue. This is very important
because it will have an impact on
financial statements. It may lead to
under/over stating of income or assets
or liabilities, etc. For example, amount
spent on additions to the buildings
should be treated as capital expenditure and must be debited to the asset
account. Instead, if this amount is
debited to maintenance and repairs
account, it is treated as a revenue
expense. This is an error of principle.
Since instead of asset account, i.e.
buildings, the maintenance and
repairs account (expense) is debited,
the trial balance will still tally but
would not be correct as per generally
accepted accounting principles.
Such errors are not disclosed by
the trial balance. This will result in
understating of income due to extra
charge under maintenance and repairs
account and understating the value of
buildings in the balance sheet.
4.5.4 Compensating Errors
When two or more errors are
committed in such a way that the net
effect of these errors on the debits and
credits of accounts is nil, such errors
are called compensating errors. They
do not effect the tallying of the trial
balance. For example: In a credit sale
transaction, the sales account is
credited in excess by say, Rs.5,000 and

similarly the suppliers account in case
of a credit purchase is understated by
Rs.5,000, this is a case of two errors
compensating for each others effect.
It is to be noted that extra credit to the
sales account is offset by lower credit
to the creditors account, both being
credit balance. Since, one plus is set
off by the other minus, the net effect
of these two errors being of
compensating nature and do not affect
the agreement of trial balance.
4.6 Classification of Errors - for
the Purpose of Rectification
From the point of view of rectification,
errors are classified into two
categories:
Errors which affect the trial

balance; and
Errors which do not affect the

trial balance.
4.6.1 Errors which Affect the
Agreement of Trial Balance
These errors are due to the mistake
having being committed on the one
side of the account. They may happen
at any of the stages of the accounting
process, like recording, posting,
balancing, etc. such errors can be
rectified by giving an explanatory note
or by passing a journal entry with the
help of a special account called
suspense account. The nature and
treatment of suspense account is
discussed later in this chapter.
Examples of this group of errors are:
errors of partial omission; error of
casting (totaling); error of carrying
125
forward; error of balancing; error of

posting to the correct account but with
wrong amount; error of posting to the
correct account but on the wrong side;
posting to the wrong side with the
wrong amount and omitting to show
an account in the trial balance.
4.6.2
Rectification
An error in the books of original entry

if discovered before posting to the
ledger, may be corrected by crossing
out the wrong amount by a single line
and writing the correct amount above
the struck off amount and putting an
initial at the place.
An error in an amount posted to
the correct ledger account may also be
corrected in a similar way or by making
an additional posting for the difference
in amount and giving an explanatory
note in the particulars column
provided that trial balance is not
prepared. But errors should never be
corrected by erasing. Crossing/
Erasures reduce the authenticity of
accounting records and give an
impression that something is being
concealed or manipulated.
Examples
Under casting in the sales book

(less total) by Rs.1,000. Since
the total of sales journal is
posted to sales account in the
ledger, only the sales account is
credited by an amount which
is lower by Rs.1,000. The
individual customer accounts
will be posted correctly to their
debit side. To rectify this error,
126
ACCOUNTANCY
Rs.15,000 (the amount of error

is double because instead of
debit to Ajays account, his
account was wrongly credited
with Rs.7,500. Thus, there is a
need for debiting his account by
double the original amount of
Rs.7,500, i.e. Rs.15,000 with
the explanation Mistake in
posting on 1.8.2001.
sales account is credited by an

additional amount of Rs.1,000
with the comment in the
particulars column as follows:
Mistake in totaling the sales
journal on page .
Errors committed while carrying
forward or balancing can also be
rectified in this manner.
An amount of Rs.6,300 for credit

purchases from Ashok on
16.4.2001, correctly entered in
the purchases journal, but while
posting, his account has been
credited with Rs.3,600, thus
under crediting his account by
Rs.2,700.
In this case since the entry has
been made correctly in the
purchases journal, posting to
the purchases account may be
assumed to be free of errors.
Therefore, the error is only in
Ashoks account. This can be
rectified by entering additional
credit of Rs.2,700 in his account
with the comment in the
particular column as Mistake
in posting on 16.4.2001.
A credit sale of Rs.7,500 to Ajay
on 1.8.2001 is wrongly credited
to his account. In this case, Ajay
is a debtor, his account should
have been debited. Since it was
correctly entered in the sales
journal, there is not an error in
the sales account. Therefore, the
error is only in Ajays account.
This error can be rectified by
debiting his account with
The above stated procedure for

correction is applicable in as
situation when trial balance has
not been drawn, but, errors are
detected. However, all these
error are generally rectified by
the use of suspense account
after the trial balance is
prepared and tallying it through
suspense account.
4.6.3
affect
Errors which do not

the trial balance
Errors which do not affect the trial

balance are committed in two or more
accounts. They can be rectified by
passing a journal entry giving the
correct debit and credit to the
concerned accounts. These correcting
entries can be recorded in the journal
proper. Examples of these errors are:
omission to pass an entry in the books
of original entry; wrong amount of
transaction recorded in the journal,
complete omission of the posting of
accounts in the ledger. Examples of
these errors are:
Complete omission at the

recording stages of the
transaction in the books of
original entry;
Recording of the transaction
with the wrong amount in the
books of original entries;
Complete omission of posting
of a transaction;
Errors of principle;
Posting of correct amount on the
correct side but to a wrong
account.
127
tallying of the trial balance. For

example, purchase of machinery on
credit for Rs.50,000 is debited to
Purchases account. Actually, the
Machinery account which is of a
capital nature should have been
debited instead of Purchases account,
which is a revenue account, though
the suppliers account is properly
credited. To correct this error, the
following journal entry will be passed.
Examples
A payment of Rs.25,000 made to a
supplier Classic Enterprises is wrongly
recorded as payment to Classic
Traders. Suppose that the following
entry has been made and posted:
Debit
Amount
Rs.
Machinery A/c
Dr.
Purchases A/c
Credit
Amount
Rs.
50,000
50,000
4.7 Suspense Account

Debit
Amount
Rs.
Classic Traders A/c
Dr.
Bank A/c
(Transaction wrongly
recorded )
Credit
Amount
Rs.
25,000
25,000
Here, instead of Classic Enter prises the account of Classic Traders

has been wrongly debited. The
correcting entry will be:
Debit
Amount
Rs.
Classic Enterprises A/c Dr.
Classic Trader A/c
(to correct the wrong debit)
Credit
Amount
Rs.
45,000
45,000
When posted to the respective

accounts, this primal entry would
nullify the effect of the earlier error.
We have learnt earlier that errors
of principle also do not affect the
In spite of best efforts, locating errors

is not an easy task and may take some
time. Unless detected and located,
errors cannot be corrected. To avoid
delay in the preparation of financial
statements, the amount of difference
of the trial balance is temporarily put
in an account called Suspense
Account so as to tally the trial balance
by putting the difference on the shorter
side. When all errors are located and
rectified, the suspense account would
close automatically. But in case some
balance still remains in the suspense
account, due to non location of errors,
it will be shown in the balance sheet
on the asset side in case of debit
balance and on the liabilities side in
case of credit balance.
4.7.1 Utility of Suspense Account
The main use of suspense account is
128
ACCOUNTANCY
to facilitate the preparation of financial

statements. Later on errors affecting
the trial balance are located,
rectification entries are passed
through the suspense account.
4.7.2 Preparation and Treatment
of Suspense Account
The following example highlights how
a suspense account is used to rectify
the errors.
Illustration 3
Indu prepared a Trial balance of her
shop for the year ended on 31 March
2001. The debit total of the trial
balance was short by Rs.9,145. She
transferred the deficiency to a
suspense account. In April 2001, after
a close examination, she found the
following errors:
(i) Purchases day book for
September 2000 was under cast
by Rs.500.
(ii) Sales day book of November
2000, was overcast by Rs.5,000
(iii) A second hand computer
purchased for office use for
Rs.4,050 was recorded in the
office equipment account as
Rs.405.
(iv) A bill drawn by her for
Rs.20,000 was not entered in
the bills receivable book.
(v) A machinery purchased for
Rs.50,000 was entered in the
Purchases day book.
Pass the necessary journal entries
to rectify the above errors to help Indu
in finalizing her trial balance.
Solution:
Books of Indu Journal
Date
Particulars
Debit
Amount
Rs.
2001
April 1
Purchases A/c
Suspense A/c
(being Purchases Day Book total under
cast by Rs.500, now rectified)
Dr.
Sales A/c
Suspense A/c
(Sales Day Book, total overcast by
Rs.5,000, now rectified)
Dr.
Office Equipment A/c

Suspense A/c
(Office equipment was under debited
by Rs.3,645, now rectified)
Dr.
Credit
Amount
Rs.
500
500
5,000
5,000
3,645
3,645
2001
April 1
129
Bills Receivable A/c

Sundry Debtors A/c
(Bill drawn completely omitted in the
books, now recorded)
Dr.
Machinery A/c
Purchases A/c
(Purchases account wrongly debited
instead of machinery account, now rectified)
Dr.
20,000
20,000
Total
50,000
50,000
79,145
79,145
Suspense Account
Dr.
Cr.
Date
2001
Particulars
March
31
Balance b/f
(balancing
figure in the
trial balance)
Amount
Rs.
Date
2001
Particulars
9,145
Apr 1
Purchases A/c
Sales
Office
Equipment
9,145
Illustration 4
The trial balance of Anand Dealers
prepared on 31 December 2000 did not
tally. The difference was placed in the
suspense account on the debit side Rs.
39,180. A detailed examination of his
books revealed the following mistakes:
(i) A payment of Rs.20,000 to John
was posted to the credit of his
account.
(ii) Goods returned by Amrita a
regular customer for Rs.5,800
was posted to the credit of sales
account
(iii) Charges on renovation to the
slow windows of the shop of
Rs.23,640 was debited to the
furniture and fixtures account
Amount
Rs.
500
5,000
3,645
9,145
as Rs.32,460.
(iv) A payment received from Rohan
for Rs.49,240 was credited to
Roshans account.
(v) Glass purchased for show
windows from Aftab suppliers
on a credit for Rs.38,450 was
recorded in the purchases day
book. At the time of posting,
their account was credited with
Rs.34,850.
You are required to correct the
above mistakes by passing the
necessary rectifying errors in the
General journal and find out amount
that was transferred to suspense
account where the trial balance did not
tally.
130
ACCOUNTANCY
Solution
Date
Particulars
2001,
Dec 31
Johns A/c
Suspense A/c
(being wrongly credited, now rectified)
Dr.
Sales return A/c

Sales A/c
Suspense A/c
(being sales account wrongly credited
and sales returns account not debited,
now rectified)
Dr.
Dr.
Suspense A/c
Furniture & Fixtures A/c
(being furniture & fixture credited wrongly,
now rectified)
Dr.
Roshans A/c
Rohan A/c
(being correction of wrong entry in Roshans
account by correctly crediting Rohan)
Dr.
1.Furniture and Fixture A/c

Purchases A/c
(being purchases account wrongly debited,
now stands corrected)
Dr.
2.Suspense A/c
Aftab A/c
(being wrong posting to Aftabs account,
now rectified)
Dr.
"
"
"
"
"
Debit
Amount
Rs.
Total
Credit
Amount
Rs.
40,000
40,000
5,800
5,800
11,600
8,820
8,820
49,240
49,240
38,450
38,450
3,600
3,600
1,51,100
1,51,100
Suspense Account
Dr.
Date
2001
Cr.
Particulars
Amount
Rs.
Date
2001
Particulars
Amount
Rs.
Furniture & Fixtures

Aftab
Balance b/f
8,820
3,600
39,180
March 31
John
Sales Returns
Sales
41,800
5,800
5,800
April 1
Dec.
31
51,600
51,600
Terms Introduced in this Chapter
Trial Balance
Errors of Commission
131
Errors of Omission
Compensating Errors
Errors of Principle
Suspense Account
SUMMARY WITH REFERENCE TO LEARNING OBJECTIVES

1 Meaning of Trial Balance
A statement showing the extract of the balances, either credit or debit of various
accounts in the ledger.
2 Objectives of Trial Balance
to check the arithmetical accuracy of the ledger accounts;

to help in locating errors;
to provide a basis for preparing the financial statements.
3 Preparation of Trial Balance

A Trial Balance has four columns, the first column contains account code, the
second column is for the title of the account, the third column is for writing the
debit balance and the final column is where the credit balance of the account in the
ledger is written.
4 Types of Errors
There are four types of errors:
Errors of Commission
Errors caused due to wrong recording of a transaction, wrong posting, wrong
totaling, wrong balancing, etc.
Errors of Omission
Errors caused due to omission of recording a transaction either fully or
partially in the books of accounts.
Errors of Principle
Errors caused due to ignoring the accounting principles which may lead
to wrong classification or identification of receipts and payments between
revenue and capital r eceipts and revenue expense and capital
expenditure.
Compensating Errors
Two or more errors committed in such a way that they nullify the effect of
each other on the debits and credits.
132
ACCOUNTANCY
5 Rectification of Errors
Errors affecting only one account can be rectified by giving an explanatory note or
by passing a journal entry. Errors which affect two or more accounts are rectified
by passing a journal entry.
6 Meaning and Utility of
Suspense Account
An account in which the difference in a trial balance is put temporarily till such
time that errors are located and rectified. It facilitates the preparation of provisional
financial statements even when the trial balance does not tally.
7 Disposal of Suspense Account
When all the errors are located and rectified by passing the necessary journal entries,
the suspense account automatically stands disposed off.
EXCERCISES
1.
Fill in the Blanks

(i)
(ii)
(iii)
(iv)
(v)
2.
Errors of principle ____________ affect the Trial Balance.

The equality of ___________ and ___________ of the Trial Balance does
not mean that the individual accounts are also _________
All ______________ and ______________ accounts appearing in the Trial
Balance are transferred to the Trading and Profit and Loss Account.
If the Trial Balance does not ___________ it indicates that some
___________ have been committed.
A Suspense Account facilitates the ____________ of financial statements
even when the ___________ has not tallied.
Multiple Choice Questions

(a)
(i)
(ii)
(iii)
(iv)
Which of the following errors will not affect the Trial Balance?
Wrong balancing of an account
Writing an amount in the wrong account but on the correct side
Wrong totaling of an account
None of the above
(b)
Which of the following errors is an error of omission?
(i)
(ii)
(iii)
(iv)
Sale of Rs.500 was written in the purchases journal

Wages paid to Mohan have been debited to his account.
The total of the sales journal has not been posted to the Sales Account
None of the above
(c)
Purchase of office furniture for Rs.3,400 has been debited to General

Expenses Account. It is:
(i)
(ii)
An error of commission
An error of omission
(iii)
(iv)
An error of principle
None of the above
(d)
Which of the following errors will affect the Trial Balance Account?
(i)
(ii)
(iii)
(iv)
Repair to buildings have been debited to buildings.

The total of purchases journal is Rs.1,000 short.
Freight paid on new machinery has been debited to the Freight
account
None of the above
(e)
Errors of commission do not allow:
(i)
(ii)
(iii)
(iv)
Correct totaling of the Balance Sheet

Correct totaling of the Trial Balance
The Trial Balance to agree
None of the above
(f)
The preparation of a Trial Balance helps in:
(i)
(ii)
(iii)
(iv)
Locating errors of complete omission

Locating errors of principle
Locating errors of commission
None of the above
(g)
Which of the following errors is an error of principle
(i)
(ii)
(iii)
(iv)
Rs. 500 received from Ganpat has been debited to his account
Purchase of Rs.1,000 has been entered in the sales journal
Repairs to buildings have been debited to Buildings Account
None of the above
(h)
Which of the following errors is an error of principle
(i)
(ii)
(iii)
(iv)
Rs.500 received from Rakesh has been debited to his account

Sales of Rs.1,000 has been entered in the Purchases journal
Repairs to Machinery have been debited to Machinery Account
None of the above
(i)
The type of account with a normal credit balance is:
(i)
(ii)
(iii)
(iv)
An asset
A drawing
A revenue
An expense
(j)
The form listing the balances and the title of the accounts in the
ledger on a given date is the :
(i)
(ii)
(iii)
(iv)
Income statement
Balance Sheet
Retained earnings statement
Trial Balance
133
134
ACCOUNTANCY
3.
Indicate whether the following accounts will have debit or credit balances:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Sales Returns
Carriage Inwards
Purchases
Outstanding Wages
Capital Account
Machinery
Goodwill
Cash in Hand
Cash at Bank
Bills Payable.
Short Answer Questions

4.
5.
6.
7.
8.
9.
10.
State the meaning of trial balance?

What is the purpose of preparing trial balance?
What is the purpose of preparing Suspense account?
Explain compensating errors and give two examples of such errors?
Explain errors of principle and give two examples of such errors?
Explain the limitations of the Trial Balance.
Name the errors that do not affect the agreement of Trial Balance.
Essay Type Questions

11. Explain the meaning and Objectives of the Trial Balance.
12. What is a Trial Balance? Name the errors which affect the Trial Balance?
13. If a Trial Balance tallies, can it be concluded that there are no errors?
Why?
14. Explain errors of omission and give two examples of such errors with
measures to rectify them.
15. Explain errors of commission and give two examples of such errors with
measures to rectify them.
Problems
16. Give rectifying journal entries for the following errors:
(i)
A sale of goods to Mohit amounting to Rs.2,500 has been wrongly
passed through the purchases book.
(i)
(i)
(i)
(i)
Rs. 15,000 paid for Furniture purchased has been charged to

Purchases Account.
A cheque for Rs.15,000 received from Ram K. Gupta was dishonored
and has been posted to the debit of Sales Returns Account.
An amount of Rs.400 due from Mukesh which was written off as a
bad debt was unexpectedly recovered and was posted to the personal
account of Mukesh.
Rs. 12,000 paid by cheque for a printer was charged to the Office
Expense Account instead of Office Equipment account.
17.
Rectify the following errors:

(i)
(ii)
(iii)
(iv)
(v)
18.
Rs. 700 allowed as Trade in allowance has been credited to Sales

Account.
Rs. 1,000 paid as rent to the landlord was debited to the Landlords
Account.
Materials from the store for Rs.1,000 and wages of Rs.400 had been
used in making tools and implements for use in the factory but no
adjustments were made in the books.
The purchases book was overcast by Rs.100.
A sale of Rs.500 to Gupta & Co. was credited to its account.

(i)
(ii)
(iii)
(iv)
(v)
Wages paid for the Construction office were debited to Wages Account,
Rs.15,000
Cartage paid for the newly purchased Furniture, Rs.100 charged to
the Cartage Account
Furniture purchased on credit from Babu Ram for Rs.3,000 recorded
as Rs.300
Wages paid Rs.2,550 were posted in the Wages Account as Rs.2,505
Purchases from Mamata Rs.1,002 were omitted from the books.
19. The trial balance of a book-keeper shows an excess of debits over credits
by Rs.361. This difference is placed in the Suspense Account. Later, the
following errors were discovered.
(i)
(ii)
(iii)
(iv)
(v)
A credit item of Rs.2490 has been debited to The personal account of

Dinesh as Rs.4290
Rs.9000 paid for Furniture bought has been charged to Purchases
Account
A discount allowed to Ramesh has been credited to him as Rs.1450
in place of Rs.1540
The total of the returns inward book was Rs.10 short.
A cheque for Rs.100 for miscellaneous expense was not posted to
Miscellaneous Expenses Account.
You are required to rectify the errors through Suspense Account and
prepare the Suspense Account.
20.
Rectify the following errors

(i)
(ii)
(iii)
(iv)
(v)
The total of sales book was overcast by Rs.200.

Rs.4,000 paid for Furniture purchased has been charged to Office
Equipment Account.
Rs.450 paid to Ramesh was debited to Rameshachars Account.
A sum of Rs.300 paid to Shyam Lal, the clerk, was debited to his
personal account.
Rs.150 paid for regular maintenance for the building was debited to
the Building Account.
135
136
ACCOUNTANCY
21.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Rectify the following errors

The total of purchases book was undercast by Rs.900
Goods invoiced Rs.2,500 and entered in the sales book on December
25 were returned on December 29. Although taken into stock on
December 31, no entry was passed in the books.
Discount allowed to Bharat Bhushan of Rs.150 was not entered in
the discount account though posted to the credit of his personal
account.
A payment of Rs.1,720 to Girish was debited to his account as
Rs.1,270.
A sum of Rs.320 written off for depreciation on an asset has not been
posted to the Depreciation Account.
Total of debit column of journal proper was short on the debit by
Rs.360
22. The Trial Balance of New Delhi Dealers as on 31 March 1999, showed a
difference, and on scrutiny, the following discrepancies were observed.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
A sales bill for Rs.8,750 was wrongly debited to the customers account
as Rs.7,850.
Sales to Santosh of Rs.4,000 was entered in the sales return book
but was correctly debited to Santosh.
Bill received from Inderjeet Singh of Rs. 5,000 was entered in the
bills payable book.
An amount of Rs.6,800 owing by a customer had been omitted from
the list of Sundry Debtors.
Goods bought from M. Kamlesh for an amount of Rs.6,400 has been
credited to his account as Rs. 8,400.
Rs.987.90 received from Mushtaq was entered in the cash book as
Rs.990.87.
Give journal entries rectifying the above errors.
23.
Will you rectify the following errors?

(i)
(ii)
(iii)
(iv)
(v)
(vi)
Rs.900 paid for the telephone bill of the telephone at the proprietors
residence was debited to Telephone Expense Account.
Cash sales of Rs. 1,200 to Manohar was correctly entered in the
Cash Book but was wrongly posted to account of Mohan
Rs. 1,500 spent on repairs of a machine was debited to Machinery
Account.
The amount of Rs.1,200 written off as bad debt, was recovered and
was credited to Rameshs personal account.
Rs.2,000 included in the wages account was spent on the construction
of a cycle shed in the factory.
An amount of Rs.1,200 withdrawn by the proprietor for his personal
use has been debited to the Trade Expenses Account.
24.

(i)
A customer Suresh, returned goods of the value of Rs.700 which
were not recorded in the books.
(ii) The debit side of Radhey Lal, a debtor, is overcast by Rs.7,000.
(iii) A cheque of Rs.1,400 received from Rajneesh & Sons was dishonored
and debited to Allowances Account.
(iv) A fax machine purchased for the office for Rs.6,200 was entered in
the purchases book.
(v)
Purchase of goods from Sushil & Co. for Rs.3,800 was entered in the
sales book as Rs. 4,800.
(vi) A credit sale to P.Mathur of Rs. 10,000 has been wrongly passed
through the purchases book.
(vii) Rs. 250 being the total discount allowed to debtors has been posted
to the credit of Discount Received Account.
ANSWERS
Fill in the Blanks
(i)
(ii)
(iii)
(iv)
(v)
do not
debit, credit, accurate
revenue, expense
tally, errors
preparation, trial balance
Multiple Choice
(i). (b); (ii). (c); (iii). (c); (iv). (b); (v). (c); (vi). (c); (vii). (c); (Viii). (c); (ix).
(c); (x). (d).
Debit or Credit Balance
(i). Credit; (ii) debit; (iii) debit; (iv) credit; (v) debit;
(vi) debit; (vii) debit; (viii) debit; (ix) debit; (x) credit.
137

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CHAPTER 4

Trial Balance and Rectification of Errors

state the meaning of trial balance;

check the accuracy of accounting records;

prepare the trial balance;

identify the nature of balances in various accounts;

state the different types of errors;

detect and rectify errors; and

appreciate the need for preparing suspense account.

In the previous chapters, you have

the ledger. The format of trial balance

Fig. 4.1 : Showing Format of a Trial Balance

The trial balance is prepared at the

Trial Balance as at 31 March 2002

Fig. 4.2 : Trial Balance for Illustration 25 Chapter 3 on page 95

TRIAL BALANCE AND RECTIFICATION OF ERRORS

forward from the respective accounts.

check the arithmetical accuracy

help in locating errors; and

provide a basis for preparing the

in the trial balance are equal, it is

4.3 Detection of Errors Revealed

Recast the totals of debit and

Compare the account head/title

Compare the trial balance of the

Re-do and check the correctness

Re-check the correctness of the

If the difference between the

Rs.750 may have been wrongly

4.4 Preparation of the Trial Balance

TRIAL BALANCE AND RECTIFICATION OF ERRORS

difference between the two sides of an

column is the title/name of the

Name of the Account

Long term loan

Outstanding interest earned

Advances from Customers

Reserves and Surplus

Provision for bad and doubtful debts

Purchased goods worth Rs.35,000

TRIAL BALANCE AND RECTIFICATION OF ERRORS

Subhash and Co.

Drawings Account 004

Purchases Account 005

Loan Account 006

Subhash and Company Account 007

Mary Export House Account 008

Electricity Account 009

TRIAL BALANCE AND RECTIFICATION OF ERRORS

Postage Account 010

Lokesh Enterprises 014

Sales Account 015

31 Dec Balance c/f

Rent Account 017

Trial Balance of Asha General Stores as on 7 January 2002

Sales Rs.1,46,616; Fixed Assets

TRIAL BALANCE AND RECTIFICATION OF ERRORS

ii. Posting on the wrong side

received from customer (Debtor) is

errors of principle. As an illustration,

TRIAL BALANCE AND RECTIFICATION OF ERRORS

credited in excess by say, Rs.5,000 and

Errors which affect the trial