TRIAL BALANCE AND

TYPES OF ERRORS ON
TRIAL BALANCE
COURSE-MBA (2022-24)
SUBJECT NAME-ACCOUNTING FOR MANAGERS
SUBJECT CODE-ACCT602

SUBMIITED BY-
SOHINI CHAKRABORTY-A91801922116
LABONITA CHATTERJEE-A91801922073
SONALI PATIKAR -A91801922052
SUZZAINE AHAMED-A91801922084
ANKITA AGARWAL- A91801922061
RUCHIRA DAM ROY- A91801922088

1
 INDEX

S.N TOPIC CONTRIBUTED BY.. PAGE NO

1 Definition of Trial Balance Sornali 3

2 Objectives of Trial Balance Labonita 4

3 Guidelines for Trial Balance Labonita 5-6

4 Requirements of Trial Balance Suzzaine 7

5 Uses of Trial Balance Suzzaine 8

6 Purpose of Trial Balance Suzzaine 9

7 Limitations of Trial Balance Ankita 10

8 Types of Trial Balance errors Ankita 11-12

9 Methods to prepare Trial Balance Ruchira 13-14

10 Methods of preparing Trial Balance (with Ruchira 15-16

specimen)

11 Sums on Trial Balance Sornali 17-22

12 How to rectify errors Sohini 23-26

13 Types of errors on Trial balance Sohini 27

14 Classification of errors on Trial Balance Sohini 28-29

15 Conclusion Labonita 30

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 DEFINITION OF TRIAL BALANCE

A trial balance is a financial report showing the closing balances of all accounts in the
general ledger at appoint in time . Creating a trial balance is the first step in closing the books
at the end of an accounting period.

All the ledger accounts are listed on the left side of the report. It can be omitting any accounts
that haven’t been used during the period. Then there’s a columns with debit balances, and one
with credit balances . The total debits and credits should match .

3
 OBJECTIVES OF TRIAL BALANCE

The main objectives of a Trial Balance are as follows:

1. To ascertain the arithmetic accuracy of the ledger accounts:

The Trial Balance provides a useful check upon the ledger postings. If a trial balance tallies,
it is proved that the posting to the ledger accounts is correct. In other words, it ensures that
both the aspects of each transaction have been posted into the ledger i.e., debit aspects have
been posted on the debit side and the corresponding credit aspects on the credit side.

2. To help in the detection or location of errors:

If a trial balance does not tally, it indicates that some errors have occurred and the accountant
will then proceed to locate such errors. Even a small difference in the trial balance is to be
given the same importance and attention as a large difference because it may be possible that
there may be a number of errors which have offset the effect of one another, resulting in a
small composite difference.

3. To obtain a summary of the ledger accounts:

A Trial Balance serves as a summary of all the ledger accounts. Scanning the Trial Balance
enables one to know the assets, liabilities, expenses, incomes, etc.

4. For the preparation of Final Accounts:

As the trial balance contains the list of all the Ledger accounts, it provides a basis for further
processing of accounting data, that is, preparation of final accounts namely Trading and
Profit & Loss Account and a Balance Sheet.

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 GUIDELINES FOR TRIAL BALANCE

A trial balance is a conglomerate of or list of debit and credit balances extracted from various
accounts in the ledger including cash and bank balances from cash books. The rule to prepare
trial balance is that the total of the debit balances and credit balances extracted from the
ledger must tally. Because every transaction has a dual effect with each debit having a
corresponding credit and vice versa.

Therefore, at the end of the accounting period or at the end of each month, the balances of the
ledger accounts are extracted, and trial balance is prepared to test as to if the total debits are
equal to total credits or not.

Let’s take a look at the guidelines for creation of Trial Balance:-

★ REAL ACCOUNT:

In Real accounts, for example building, machinery, furniture, opening stock, investment, bills
receivable, cash in hand, cash at bank all will be debited.

★ PERSONAL ACCOUNT

Personal accounts related to assets, for example, debtors, prepaid expenses, drawing,
outstanding incomes, loans, advances made, etc are always to be debited.

★ NOMINAL ACCOUNT

Nominal accounts representing losses and expenses for example, wages, carriage, purchases,
salary paid, discount allowed, etc will be debited.

★ PERSONAL ACCOUNT

Personal accounts related to liabilities, for example capital, creditors, loan taken, bills
payable, reserves, outstanding expenses, etc will be credited.

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 ★ NOMINAL ACCOUNT

Nominal accounts representing incomes and gains, for example commission received,
discount received, profit, sales, etc, will always be credited.

★ ADJUSTMENT AGAINST ASSET

Provision for bad debt, provision on stock, purchase return, etc will be credited.

★ ADJUSTMENT AGAINST LIABILITY

Provision for discount on creditors, sales return, etc, must be debited.

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 REQUIREMENTS OF TRIAL BALANCE –

 The trial balance usually includes a list of totals of accounts of the general ledger. The
general ledger accounts should include the description of the account, the account
number, and the final debit/credit balance.
 Along with the above, the trial balance should include the accounting period of the
report being created.
 Companies initially record their business transactions in bookkeeping accounts within
the general ledger. Depending on the kinds of business transactions that have
occurred, accounts in the ledgers could have been debited or credited during a given
accounting period before they are used in a trial balance worksheet.
 Furthermore, some accounts may have been used to record multiple business
transactions. As a result, the ending balance of each ledger account as shown in the
trial balance worksheet is the sum of all debits and credits that have been entered to
that account based on all related business transactions.
 A company’s transactions are recorded in a general ledger and later summed to be
included in a trial balance.
 At the end of an accounting period, the accounts of asset, expense, or loss should each
have a debit balance, and the accounts of liability, equity, revenue, or gain should
each have a credit balance.
 However, certain accounts of the former type also may have been credited and certain
accounts of the latter type also may have been debited during the accounting period
when related business transactions reduce their respective accounts’ debit and credit
balances, an opposite effect on those accounts’ ending debit or credit balances.
 On a trial balance worksheet, all of the debit balances form the left column, and all of
the credit balances form the right column, with the account titles placed to the far left
of the two columns.

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 USES OF THE TRIAL BALANCE SHEET –

 A trial balance can be used to detect any mathematical errors that have occurred in a
double entry accounting system. If the total debits equal the total credits, the trial
balance is considered to be balanced, and there should be no mathematical errors in
the ledgers.
 While it is not a financial statement, a trial balance acts as the first step in preparing
one. Accountants use the trial balance spreadsheet as the basis while preparing a
financial statement.
 A trial balance is made in accordance with the double-entry concept of bookkeeping.
This means that for every entry recorded in the debit column, a corresponding credit
entry will also be recorded in the credit column. Since it involves recording all the
entries from the ledgers of the organization in this manner, it also helps to identify and
rectify errors.
For example, if there is a mismatch between the debit and credit account totals at any point, it
indicates an error. However, since most companies use software tools, their system may not
allow new entries to be added if there is a mismatch between the values, leaving no room for
error. This helps to achieve mathematical accuracy.

 With the help of the trial balance, one can also ensure that the account balances are
accurately extracted from accounting ledgers.
 Being a summary sheet, it helps to give a bird’s eye view of the accounting
transactions of the company.
 A trial balance can be an important tool for auditors as they can analyse the trial
balance prior to scrutinizing the ledgers.
 Adjustments can be made easily even after a trial balance has already been prepared
because it provides the accountants with tallied columns.

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 PURPOSE OF TRIAL BALANCE SHEET –

 The purpose of a trial balance is to ensure that all entries made into an organization’s
general ledger are properly balanced. A trial balance lists the ending balance in each
general ledger account.
 The total dollar amount of the debits and credits in each accounting entry are
supposed to match. Therefore, if the debit total and credit total on a trial balance do
not match, this indicates that one or more transactions were recorded in the general
ledger that were unbalanced.
 From a practical perspective, accounting software packages do not allow users to
enter unbalanced entries into the general ledger. This means the trial balance is not
needed by entities that have computerized systems.
 If a business is still using manual record keeping, then the trial balance has more
value, since it is possible to create unbalanced entries in such a system.
 When a manual recording keeping system is used, the trial balance is also used to
create the financial statements. This means that the account balances in the trial
balance are manually aggregated into the line items found in the financial statements.
 Auditors also use the trial balance. They request it early in an audit, and transfer the
ending account balances from this report into their auditing software. They then use
audit procedures to test these balances.

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 LIMITATIONS OF TRIAL BALANCE

A trial balance is not a conclusive proof of absolute accuracy of the books of accounts. If the

trial balance agrees, it does not mean that there are absolutely no errors in the books of

accounts. A tallied trial balance merely indicates that equal debits and credits have been

recorded in the books of accounts. Even when trial balance agrees, some errors might remain

undetected and will not be disclosed by the trial balance.

Thus, the limitations of trial balance are :

1. Errors of principle, i.e., errors which arise due to incorrect application of the principle

of accounting are not disclosed by trial balance.

2. Compensating errors, i.e., group of errors which are committed in such a way that one

mistake is compensated by the other and the Trial Balance still agrees.

3. Transactions completely omitted from recording in the books of accounts cannot be

detected.

4. Recording both aspects of a transaction twice in the books of accounts.

5. Posting correct amount on the correct side but in the wrong account is not reflected by

the Trial Balance.

6. Wrong amount recorded I the books of original entry and same amount is debited and

credited , is not brought out by the Trial Balance.

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 TYPES OF TRIAL BALANCE ERRORS

The unadjusted trial balance may contain a number of errors, only a few of which are

easy to spot in the trial balance report format. Here are a few common errors, with

ways to spot them :

1. Entries Made Twice - If an entry is made twice, the trial balance will still be in

balance, so that is not a good document for finding it. Instead, for an ongoing

transaction, you may have to wait for the issue to resolve itself. For example, a

duplicate invoice to a customer will be rejected by the customer, while a

duplicate invoice from a supplier will (hopefully) be spotted during the invoice

approval process.

2. Entries Not Made at All - Impossible to find on the trial balance, since it is not

there (!). Your best bet is to maintain a checklist of standard entries, and verify

that all of them have been made.

3. Entries to the Wrong Account - This may be apparent with a quick glance at the

trial balance, since an account that previously had no balance at all now has one.

Otherwise, the best form of correction is preventive - use standard journal entry

templates for all recurring entries.

4. Reversed Entries - An entry for a debit may be mistakenly recorded as a credit,

and vice versa. This issue may be visible on the trial balance, especially if the

entry is large enough to change the sign of an ending balance to the reverse of

its usual sign.

5. Transposed Numbers - The digits in a number may have been switched. This is

easy to find, since the underlying entry is unbalanced, and so should not have

been accepted by the accounting software. If a manual system is being used,

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 journal entry totals must be compared to the totals in the trial balance. This

issue relates to the following one.

6. Unbalanced Entries - This is listed last, since it is impossible in a computerized

environment, where entries must be balanced or the system will not accept them.

If you are using a manual system, then the issue will be apparent in the column

totals of the trial balance. However, locating the exact entry is vastly more

difficult, and will call for a detailed review of every entry, or at least of the

totals in every subsidiary ledger that rolls into the general ledger.

Error Correction Best Practices - Whenever you correct an error, be sure to use a

clearly labeled journal entry with supporting documentation, so that someone else

can trace through your work at a later date.

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 METHODS TO PREPARE TRIAL BALANCE

There are three methods in which a Trial Balance can be prepared. Which are as follows :

 Total Method or Gross Trial Balance

 Balance Method or Net Trial Balance
 Compound Method

These could be explained as under:

 Total Method or Gross Trial Balance:

 Under this method, two sides of the accounts are totalled. The total of the debit side is called
the “debit total” and the total of the credit side is called the “credit total”.

All the debit totals are entered on the debit side of the Trial Balance while the credit total is
entered on the credit side of the Trial Balance

If any particular account has a total on one side, it will be entered either in the debit column
or the credit column as the case may be.

Advantage
 It promotes the arithmetical accuracy of the accounts.
 Extraction of ledger balances is not required at the time of
preparation of Trial Balance.

Disadvantage
 Preparation of final accounts is not possible.

 Net Trial Balance or Balance Method:

 Under this method, all the ledger accounts are balanced. The balancing figure may be
either a “debit balance” or “credit balance”.

Advantage
o It helps in the easy preparation of final accounts.
o Time and labour can be saved in constructing a Trial
Balance following this method.

Disadvantage
o Errors may remain undisclosed irrespective of the
agreement of Trial Balance.

 Compound Method:

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  Under this method, totals of both the sides of the accounts are written in the separate

columns. Along with this, the balances are also written in the separate columns. Debit

balances are written in the debit column and credit balances are written in the credit

column of the trial balance.

Advantage
o It offers the advantage of both methods.

Disadvantage
o Lengthy process and more time consumed in the
preparation of a Trial Balance.

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 METHODS OF PREPARING TRIAL BALANCE (WITH SPECIMEN)

1. Total Method:

In this method, ledger accounts are not balanced. They are totaled. These totals are entered in

the debit and credit columns. The grand total of debit column will be equal to the total of the

credit column.

The format of a Trial balance under this method is as follows:

2. Balance Method:

Under this method, the closing balances of ledger accounts are tabulated in a separate

statement. The brought down balances are brought to this statement.

All debit balances are shown in the debit column and all credit balances in the credit column.

This method is more commonly used one.

The format of Trial balance under this method is as follows:

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Important Note: All debtors’ accounts, Assets or Properties accounts, all expenses or losses

accounts will always show debit balances. They will be shown in the debit side/column of the

trial balance.

All creditors’ accounts, Liabilities’ accounts, Income or gains accounts will always show

credit balances. They will be shown in the credit side/column of the, trial balance.  

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 SUMS IN TRIAL BALANCE

SUM-1: we will prepare the trial balance on NSBHandicraft as per the transactions shown
below table for the firm on March 31st , 2019 .

Particul Amou Particul Amou Particul Amou

ar nt ar nt ar nt
Bill (inr) Rent (inr) Drawing (inr)
payable 5,000/ Outstand 15,00 s 2,000/
Insuranc - ing 0/- Equipm -
e 5,000/ salaries 5,000/ ent 20,00
80,00
- 30,00
- Maintenan 3,00
0/-
charges 0/- Machiner 0/- ce 0/-
Owner y expenses
investme 4,00 Prepaid 4,00 1,00
0/- rent 0/- Accured 0/-
nts expenses
Unearne 25,00 Sundry 15,00 2,00
Mics
d 0/- debtors 0/- 0/-
expenses
revenue
Marketab 10,00 Accrued 20,00 Sal 42,25
Bank
le 0/- revenu 0/- es 0/-
loan
security 14,00 e 10,00 Purcha 30,00
Accured 0/- Unexpir 0/- ses 0/-
depreciat ed
ion insuran
equipme 3,00 Vendor
ce 4,00 Tax 11,25
nt 0/- payable 0/- es 0/-
Depreciat
ion
expenses
equipme
nt

Trial Balance as on March 31 2019 

st

Sr.   Particulars  Amount (INR)

17
 no. Dr .  Cr .

1  Bill payable  5,000

2  Insurance charges  5,000

3  Owner investments  80,000

4  Unearned revenue  4,000

5  Bank loan  25,000

6  Marketable security  10,000

7  Accumulated depreciation equipment  14,000

8  Depreciation expenses equipment  3,000

9  Rent  15,000

10  Outstanding salaries  5,000

11  Machinery  30,000

12  Prepaid rent  4,000

13  Sundry debtors  15,000

14  Accured revenue  20,000

15  Unexpired insurance  10,000

16  Vendor payable  4,000

17  Drawings  2,000

18  Equipment  20,000

19  Mainteinance expenses  3,000

20  Accured expenses  1,000

21  Mics expenses  2,000

22  Sales  42,250

23  Purchase  30,000

24  Taxes  11,250

Total  1,80,250  1,80,250

As per the trial balance prepared for NSBHandicraft as of march 31st 2019 we can see that the
total of the debit side is the same as the total of the credit side in the trial balance .

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SUM-2: to understand the method of preparation of trial balance . Below are the balances
from the books of Jyoti Enterprises as of March 31st , 2019 .

Amount Amount Particular Amount

Particular Particular
(INR) (INR) (INR)

Owner Bill payable 800000 Bank loan 500000

5,00,000
equity

Machinery 200000 Sales 340000 Salaries 100000

Cash 10000 Agent 12000 General 10000
commission reserve
Bills 70000 Phone 70000 Discount 1000
receivable charges given
Plant and 200000 Rent 10000 Drawings 20000
machinery
Repair and 8000 Furniture 20000 Bad debt 4400
maintenance
Stock in 50000 Purchases 250000 Interest 5000
hand received
Insurance 54000 Discount 2000 Taxes 30000
charges received

Trial Balance Jyoti Enterprises as on march 31st 2019

Sr.   Particulars  Amount (INR)

no. 
Dr .  Cr .

1  Owner equity  5,00,000

2  Machinery  2,00,000

3  Cash in hand  10,000

4  Bills receivable  70,000

5  Plant and building  2,00,000

6  Repairs and maintenance  8,000

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7  Stock in hand  50,000

8  Insurance charges  5,400

9  Bills payable  80,000

10  Sales  3,40,000

11  Agent commission  1,200

12  Phone charges  7,000

13  Rent  10,000

14  Furniture  20,000

15  Purchases  2,50,000

16  Discount received  2,000

17  Bank loan  50,000

18  Salaries  1,00,000

19  General reserve  10,000

20  Discount given  1,000

21  Drawings  20,000

22  Bad debts  4,400

23  Interest received  5,000

24  Taxes  30,000

Total  9,87,000  9,87,000

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As per the trial balance prepared for Jyoti Enterprises , we can see that both sides of  the trial
balance are the same indicating no error in ledger posting during the financial  year . the trial
balance shows all debit and credit balances in one statements . 
SUM-3: prepare a trial balance for Go Green Pvt . Ltd as per the balance is  shown below . 

Particulars  Amount   Particulars  Amount   Particulars  Amount 

(INR)
(INR) (INR)

Cash in hand  5,000/-  Sales  3,00,000/-  Office rent  2,000/-

Cash at bank  2,00,000/-  Purchases  80,000/-  Drawings  22,000/ 

-

Sundry 30,000/-  Carriage 3,000/-  Stock  18,000/ 

debtors  inwards 
-

Sundry 14,000/-  Employee 25,000/-  Capital a/c  100,000 

creditors  salary 
/-

Bills 22,000/-  Marketing   5,000/-  Furnitures 7,000/-

receivables  and  
expenses
fixtures 

Bills payables  7,000/-  Insurance 2,000/-

paid 

 Trial Balance for Go Green Pvt . Ltd . as on march 31st 2019

 

Sr   Particulars  Amounts (INR)

.  
Dr .  Cr .
no.

1  Cash in hands  5,000

2  Cash at bank  2,00,000

3  Sundry debtors  30,000

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 4  Sundry creditors  14,000

5  Bills receivable  22,000

6  Bills payable  7,000

7  Capital A/c  1,00,000

8  Drawings  22,000

9  Sales  3,00,000

10  Purchases  80,000

11  Carriage inwards  3,000

   Employee salary  25,000

12

13  Marketing expenses  5,000

14  Insurance paid  2,000

15  Furniture and fixtures  7,000

16  Stock  18,000

17  Office rent  2,000

Total  4,21,000  4,21,000

As per the trial balance prepared for the Go Green Pvt . Ltd . we can see that both  sides of
the trial balance are the same . Hence a trial balance is not an account but a  schedule of all
the balances of all ledger accounts on a particular date . The trial  balance will have Debit and
credit columns , the account with a debit balance will be  written on the debit side and the
account with a credit balance will be posted on the  credit column side with the actual balance
amount . 

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 STEPS TO LOCATE THE ERRORS

STEP-1: Check the totals of both the debit and credit amount columns of Trial balance.
STEP-2: Apply trial and error techniques such as scanning all the entries of amount
equivalent to the amount of difference or 50% of the amount of difference (if the difference is
divisible by 2). On scrutiny of the books, errors such as transposition of the figures, positing
of an amount on wrong side of ledger account etc. may be discovered.
EXAMPLE 1- If the total of credit side of the Trial balance exceeds by Rs 1800, it is
possible that positing of Rs 1800 on the debit side has been omitted. To detect such type of
errors, the accountant should scan all the entries of an amount of Rs 1800.
EXAMPLE-2- If the total of credit side of the Trial balance exceeds by Rs 1800, it is possible
that a debit item of Rs 900 has been posted in the ledger as a credit item. It may be noted that
if amount of difference is Rs 1300.51, it is not possible that an item of Rs 650.255 has been
posted on the wrong side of the ledger amount. To detect such type of errors, the accountant
should scan all the entries of an amount equal to 50% of the amount of difference (if divisible
by 2).
EXAMPLE-3- If the debit item of Rs 3195 has been posted as Rs 1395, the credit side of the
Trial balance will exceed by Rs 1800 which is divisible by 9. Thus, a difference in the trial
balance divisible by 9 helps in detecting the error involving the transposition of figures.
EXAMPLE-4- If the debit item of Rs 12000 has been posted as Rs 1200, the credit side of the
Trial balance will exceed by Rs 10800 which is divisible by 9. If the difference is divided by
9, a quotient of Rs 1200 will be obtained and all amounts of Rs 1200 should be scanned to
detect such type of error.
STEP-3: Check with the help of ledger to ensure whether the balance of each and every
account including Main Cash and Bank account and Petty Cash Account has been included in
the correct amount column with correct amount in the Trial balance.
STEP-4: Check whether totals of the Sundry Debtors and Sundry Creditors are correct.
STEP-5: Check whether the Cash and Bank balances have been correctly ascertained.
STEP-6: Check whether all the opening balances appearing the previous year’s Balance Sheet
have been correctly brought forward.
STEP-7: Check whether balancing of all the accounts is correct.

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STEP-8: Check whether the posting to ledger accounts has been done correctly.
STEP-9: Check whether the casting and carrying forward of books of original entry are
correct.

EXAMPLE
Mr X started his small business on 1.4.2017 and since he is weak in accountancy, he requests
you to tell him whether the following Trial balance prepared by him is correct or not. He
provides you the following information:
(i) There is no credit sale/purchase.
(ii) There is no returns inwards/outwards.
(iii) Only cash book and ledger are maintained

Dr CASH BOOK FOR THE PERIOD FROM 1.4.2017 TO 31.3.2018

Cr
Particulars Disco Cash Bank Particulars Disco Cash Bank
unt (Rs) (Rs) unt (Rs) (Rs)
(Rs) (Rs
)
To Capital A/ 10,000 3,400 By Bank A/c 2,000
c 500 5,000 (C) 1,000
To Sales A/c 1,000 By Cash A/c 600
To Ram 2,000 (C)
To Cash (C) 1,000 By Ram 8,000
To Bank (C) 200 10,000 By Purchases
To Sales A/c 500 A/c 8,000
To Shyam 5,100 (goods) 3,000
To Balance c/ By Purchases 500
d A/c
(furniture) 9,000
By Drawings 2,000
A/c 2,000
By Salaries A/c 900
By Purchases
A/c
(goods)
By Shyam
By Drawings
A/c
By Balance c/d

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 300 16,000 22,000 -- 16,000 21,000

TRIAL BALANCE MR X AS AT 31.3.2018

S.N. Name of the Account Debit(Rs) Credit(Rs)
1 Capital Account -- 13,400
2 Sales -- 15,300
3 Shyam -- 400
4 Discount Account -- 300
5 Purchases 27,000
6 Drawings 5,000
7 Salaries 500
8 Ram 1,500
9 Difference in Trial Balance 5,600
34,000 35,000

SOLUTION
In such a case, the following steps should be taken to find out the errors:

STEP-1: Check the total of each side of the Trial balance

Total of Dr side-Rs 34,000, Total of Cr side-Rs 35,000. It means the debit side of the Trial
balance was overcast by Rs 1,000. Now, the difference is reduced to Rs 4600(i.e 5,600-1,00)
STEP-2: Check whether the balance of each and every account opened in the ledger has been
included in the Trial balance.
By observation one may find that the balances of Cash and Bank have not been included.
Thus enter the cash balance of Rs 900 as a debit balance and bank overdraft of Rs 5,100 as a
credit balance in the Trial balance. Now the difference is reduced to Rs 400(i.e 4,600-
5,100+900)
STEP-3: Check whether the balances of various accounts have been included on the correct
side(Debit/Credit) in the Trial balance.
By the observation, one may find that the balance of Discount A/c has been entered on credit
side instead of debit side. Thus enter the balance of Discount A/c on the debit side. Now the
difference is increased to Rs 1000(i.e 400+300+300)
STEP-4: Check whether the balances of various accounts have been included with the correct
amounts in the Trial balance.
By observation, one may find that the balance of Purchase A/c has been entered as Rs 27,000
instead of Rs 25,000. Thus reduced the balance of Purchases A/c by Rs 2000. Now the credit
side exceeds the debit side by Rs 1000(i.e Rs 2000-Rs 1000).
STEP-5: Check whether the balancing of all accounts is correct.

25
During the process of balancing the various accounts one will find that the balance of bank
column has been taken as Rs 5,100 instead of Rs 4,100 thus, reduce the balance of the bank.

Now the difference is reduced to NIL. Though the agreement of two sides of the trial balance
is a prima facie test of arithmetical accuracy, yet it is not a conclusive proof of the accuracy
of records since the trial balance may agree without disclosing some errors, the examples of
such errors are as under:
(1) Error of Omission i.e omission of recording the transactions in the books of original
entry.
(2) Error of recording in the books of original entry.
(3) Error of posting to wrong account but on correct side with correct amount.
(4) Error of principle.
(5) Compensatory error.

CORRECTED TRIAL BALANCE AS AT31.3.2018

S.N. Name of the Account L.F. Debit(Rs) Credit(Rs)
1 Capital A/c -- 13,400
2 Sales A/c -- 15,300
3 Shyam’s A/c 1,500
4 Discount A/c 300
5 Purchases A/c 17,000
6 Salaries A/c 500
7 Drawing’s A/c 5,000
8 Ram’s A/c -- 400
9 Cash in Hand 900
10 Bank Overdraft -- 4,100
11 Furniture A/c 8,000
33,200 33,200

26
 CLASSIFICATION OF ERRORS
All accounting errors may be classified as follows:
(1) On the basis of their of their effect on Trial balance.
(a) Errors affecting the agreement of Trial balance.
(b) Errors not affecting the agreement of Trial balance.

(2) On the basis of clerical/principle errors

(a) Clerical Errors(i.e those errors which arise because of mistakes committed in the
ordinary course of the accounting work)
(i) Error of Omission (ii) Error of Commission (iii) Compensating Errors
(b) Error of Principle

 ERROR OF OMISSION

This error arises when a transaction is completely or partially omitted to be

(i) Recorded in the books of accounts or, (ii) Posted to the ledger
Error of omission may be classified as Error of Complete Omission and Error of Partial
Omission.
Error of Complete Omission- This error arises when any transaction is not recorded in the
books of original entry at all or, the transaction is recorded in the General Journal but is not
posted in the ledger at all. This error does not affect the Trial balance.
For example- Goods purchased on credit by Ram not recorded in the Purchases book.
Error of Partial Omission- An error of omission other than an error of complete omissionis
called an Error of Partial Omission. This error effects the Trial balance.

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For example-Transaction correctly recorded in the books of original entry(other than Journal
proper) but not posted in the ledger at all; {e.g A Credit sale of goods to Shyam recorded in
the Sales book but omitted to be posted in Shyam’s account}.

 ERROR OF COMMISSION

This error arises due to wrong recording, casting, carry forward, posting, balancing, etc. Error
of commission may be classified as follows:
1. Error of Recording 2. Error of Casting 3. Error of Carrying forward 4. Error
of Posting
Error of Recording- This error arises when any transaction is incorrectly recorded in the
books of original entry. This error does effect the Trial balance.
Types of Error of Recording
S.N. Books of original Name of the Account with Whether affects
entry in which the account used in which the the Trial balance
transaction was recording transaction was
recorded recorded
1 Correct Correct Wrong No
2 Correct Wrong Correct No
3 Correct Wrong Wrong No
4 Wrong Correct Correct No
5 Wrong Correct Wrong No
6 Wrong Wrong Correct No
7 Wrong Wrong Wrong No
For example-Goods of Rs 500 purchased on credit from Ram are recorded in the purchases
book for Rs 5,500.
Error of Casting- This error arises when a mistake is committed in totaling. This error affects
the Trial balance.
For example-Purchases book is totaled as Rs 1,000 instead of Rs 100.
Error in Carrying Forward- This error arises when a mistake is committed in carrying forward
a total of one page on the next page. This error Affects the Trial balance.
Error of Posting- This error arises when information recorded in the books original entry is
incorrectly entered in the ledger. This error may or may not affect the Trial balance.
Types of Error of Posting
S.N. Account to which Side(debit/credit) on Amount with Whether affects
the posting was which posting was which posting was the Trial balance
made made made
1 Correct Correct Wrong Yes
2 Correct Wrong Correct Yes
3 Correct Wrong Wrong Yes
4 Wrong Correct Correct No

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 5 Wrong Correct Wrong Yes
6 Wrong Wrong Correct Yes
7 Wrong Wrong Wrong Yes

 COMPENSATING ERROR

These errors arise when two or more errors are committed in such a way that the net effect of
these errors on the debits or credits of accounts involved is nil. In other words, compensating
errors refer to such a group of errors wherein the effect of one error is compensated by the
effect of other error or errors. These errors do not affect the agreement of the Trial balance
but may or may not affect the figure of net profit.
For example- If the total of purchases book is posted in the ledger as Rs 1,00 instead of Rs
100 and at the same time Ram’s account is credited in the ledger as Rs 1,00 instead of Rs
100, as a result of these errors, there is an excess credit of Rs 900 in Ram’s account and an
excess debit of Rs 900in Purchases account. Thus, these two errors nullify the effect of each
other. The first error will increase the figure of Purchases and consequently will reduce the
figure of profit.

 ERROR OF PRINCIPLE

This error arises when the transaction is recorded ignoring the distinction between the capital
and revenue item. In other words, this error involves an incorrect allocation of expenditure or
receipt between Capital and Revenue. The correct allocation between Capital and Revenue is
of paramount importance because any incorrect allocation would disturb the final results as
disclosed by the Financial Statements. It may lead to under/over stating of Incomes or
Expenses of Assets or Liabilities. This error does not affect the Trial balance.
For example-Error-Freight paid for bringing a new machinery is debited to Freight A/c
Effects: (1) On Revenue Expenditure (i.e Freight)- Overstated (2) On Capital Expenditure
(i.e Cost of Machinery)-Understated (3) On Depreciation on Machinery-Under changed (4)
On Net Profit-Understated by the Net Effect (i.e the difference between the Freight and the
amount of Depreciation).
Note: The costs incurred on the acquisition, installation and commissioning of a fixed asset
up to the point the fixed asset is ready for use represent Capital expenditures.

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 CONCLUSION

The final result of accounting is access to financial information and position. To attain this
we have to prepare a Profit & Loss account and balance sheet for the period.

Trial balance is basically the summary of account balances with items of income, represented
by expense, Assets, Liabilities and capital either a credit or debit.

As far as books are concerned, Preparing a Trial balance helps in deducting the mathematical
errors in a Double entry system and provides the total debit equals the total credit.

Tallied Trial balance does not mean that it is free from Error of Omission or Error of
Commission or Principal Errors. The major conclusion from tallying a trial balance is that
account balances are free from arithmetic errors, free from transpose errors.

The goal is to confirm that the sum of all debits equals the sum of all credits and identify
whether any entries have been recorded in the wrong account.

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