📘 Chapter 4: Trial Balance and Rectification of Errors
🔹 4.1 What is a Trial Balance?
A Trial Balance is a statement that lists all ledger account balances on a specific date to
check arithmetical accuracy of books of accounts.
Objective: To verify whether total debits = total credits
🔹 4.2 Objectives of Trial Balance
[Link] Objective
1 To test arithmetical accuracy
2 Basis for preparing final accounts
3 Summarization of all account balances
4 Helps detect certain accounting errors
🔹 4.3 Format of Trial Balance
S. No Account Title L.F. Debit (₹) Credit (₹)
1 Cash A/c 101 ₹10,000
2 Capital A/c 201 ₹10,000
Ledger Folio (L.F.) is optional and used for reference to ledger pages.
🔹 4.4 Methods of Preparing Trial Balance
Method Description
Total Method Shows total debits and credits of each account
Method Description
Balance Method Shows net balances of each account (most commonly used)
Total-cum-Balance Shows both total and balance of each account (least common)
🔹 4.5 Types of Errors
Type Description
Error of Omission Entire transaction is not recorded
Error of Commission Wrong amount or posting in the correct account
Error of Principle Violation of accounting principle (e.g., capital vs revenue)
Compensating Error Two or more errors cancel out each other's effect
🔹 4.6 Examples of Errors
1. Error of Omission
Sale of ₹10,000 not recorded
Rectification:
Debtor A/c Dr. 10,000
To Sales A/c 10,000
2. Error of Commission
Posted ₹5,500 instead of ₹5,000
Rectification entry:
If excess ₹500 credited, then:
Debtor A/c Dr. 500
To Suspense A/c 500
3. Error of Principle
Repairs to machinery ₹2,000 debited to Machinery A/c
Rectification:
Repairs A/c Dr. 2,000
To Machinery A/c 2,000
4. Compensating Error
Purchases undercast by ₹1,000 and sales also undercast by ₹1,000
Effect nullifies — trial balance agrees, but still incorrect
🔹 4.7 Suspense Account
• A temporary account used to tally Trial Balance when the error is not yet found.
• Once the error is located and corrected, the suspense account is closed.
Appears on Asset side (if debit balance) or Liability side (if credit balance) in the
Balance Sheet.
🔹 4.8 Rectification of Errors
🔸 Before Trial Balance is Prepared (i.e., in the same year):
Correct the journal entry directly
Example:
Wrong entry:
Wages A/c Dr.
To Cash A/c
Correct entry (should be):
Machinery A/c Dr.
To Cash A/c
Rectification:
Machinery A/c Dr.
To Wages A/c
🔸 After Trial Balance is Prepared:
Use Suspense A/c for one-sided errors.
Example:
Credit sales to Raj ₹5,000 omitted
Rectification:
Raj A/c Dr. 5,000
To Sales A/c 5,000
If posted ₹4,000 instead of ₹5,000:
Raj A/c Dr. 1,000
To Suspense A/c 1,000
🔹 4.9 Effects of Errors on Trial Balance
Error Type Trial Balance Tally? Correction Method
Error of Omission Yes Pass correct entry
Error of Commission No (one-sided) Use Suspense A/c
Error of Principle Yes Correct journal entry
Compensating Errors Yes Adjust both incorrect entries
🔹 4.10 Golden Rule for Rectification
Reverse the wrong entry and pass the correct entry
If full reversal is not possible, adjust the difference using the suspense
account.
🔹 4.11 Steps to Rectify Errors
1. Identify the wrong entry
2. Understand the correct treatment
3. Pass adjustment or rectification entry
4. If one-sided: Use Suspense A/c
5. Post to ledger accordingly
🔹 4.12 Tips for CA Foundation Exam
Master error types and examples
Practice journal entries with suspense accounts
Know when and how to use suspense accounts
Be clear on before and after trial balance rectification
