Error Not Disclosed by Trial Balance

 1. Errors of Total Omission

 If a transaction is not at all recorded in the books of original entry, both its
debit and credit would be omitted. The trial balance, therefore, shall not be
affected.
 For instance, goods sold to Mohan for Rs. 10,000. If the entry is not recorded
in sales book at all, neither the sales will be credited nor the Mohan's
account will be debited. So, the trial balance shall agree.
 2. Errors of Commission
 Such errors are caused by carelessness. In some of the cases, such errors
do not effect the total of the trial balance.
 For instance, wrong recording in the books of original entry or posting to
wrong account with correct amount and correct side. For instance, debiting
the Mohan's Account instead of Shyam's Account.
 Error Not Disclosed by Trial Balance
 3. Errors of Principle
 Such error arises because of lack of knowledge of principles of
accountancy. It can be in any of the ways:
 (i) Treating Capital Expenditure as Revenue Expenditure and vice
versa,
 (ii) Treating Capital Income as Revenue Income and vice versa.
 For instance, repairs to machinery of Rs. 5,000 debited to
Machinery A/c. In this case, revenue expenditure has been
treated as capital expenditure.
 Similarly, if building sold is credited to Sales A/c, Trial balance will
be uneffected though principally wrong classification has been
made of capital and revenue items.
 Error Not Disclosed by Trial Balance
 4. Errors in the book(s) of Original Entry
 The trial balance would be uneffected if an entry is in a wrong
book of original entry or it is recorded in the proper subsidiary
books but with a wrong amount.
 In both the cases, the trial balance would tally. For e.g., An item of
credit purchases wrongly entered in the sales book.
 It will result into a wrong debit and a wrong credit. Similarly, if
purchases of Rs. 500 wrongly entered in the purchase book as
Rs. 5000.
 In this case, both the purchases account and the account of the
creditor are affected to the same extent, thus the trial balance
shall tally.
 Error Not Disclosed by Trial Balance
 5. Compensatory Errors
 These errors are also called self-balancing errors
because such errors neutralize the effect of the error
committed earlier.
 These errors do not affect the agreement of trial balance
because errors on one side of the ledger account are
compensated by errors of the same amount on the other
side.
 For example, Parveen's Account debited with Rs. 200
instead of Rs. 100 and Samir account debited with Rs.
350 instead of 450.
 Errors disclosed by Trial Balance/ Types of errors

 Omission in Postings
 An item entered in the relevant subsidiary book like cash book or sales book but not posted to the
ledger account.
 For example, Rs. 1,500 paid for insurance, though entered in the cash book not posted to the
insurance account in the ledger.
 Posting on the Wrong Side of An Account
 For example, cash paid to Mohan wrongly posted to the credit side of Mohan's Account.
 Posting of Wrong Amount
 If wrong amount is posted in one of the accounts while posting it would definitely cause disagreement
in trial balance.
 For example, goods worth Rs. 500 sold to X but X's A/c has been debited with Rs. 50. It will increase
the credit side of trial balance by Rs. 450.
 Errors disclosed by Trial Balance/ Types of errors

 Wrong Totalling or Balancing of Ledger Account

 If any account in the ledger is wrongly totalled or balanced, it will cause
disagreement in trial balance.
 Wrong Totalling of Subsidiary Books
 If the total of any subsidiary book is cast wrongly, then also trial balance shall not
agree.
 An item Posted twice
 Double postings will also cause disagreement of trial balance.
 For example, a sum of Rs. 200 by Rs. 200 paid to Ram posted twice in his account,
as a result debit side of the trial balance will be greater by Rs. 200
 Wrong totalling of trial balance
 If an error is made in adding up columns of trial balance, the trial balance will not
agree.
 Cash Book
 A business firm usually maintains the cash book for recording both cash and bank
transactions.
 A cash book is a book maintained by the individual/ businessman to record the cash
and bank transactions.
 Cash book contains all cash receipts and payments, including bank deposits and
withdrawals.
 Receipts will be entered on the debit side of the cash book and payments will be
entered on the credit side of the cash book.
 Cash transactions will be entered in the cash column and bank transactions will be
entered in the bank column.
 It shows the balance of cash and bank at the end of the period. All the entries in the
Cash Book are made by the customer/businessman.
 Pass Book
 A pass book is a book issued by a bank to an account holder.
 Whenever a customer deposits or withdraws money from their account, the banker
will record the sums deposited or withdrawn.
 A Bank Pass Book will also have a debit column and credit column to enter the
deposits and withdrawals.
 Though the account holder physically holds the bank pass book, only the banker has
the right to enter the transactions in the pass book.
 All entries in the Pass Book are made by the bank
 Bank Reconciliation Statement

Bank Reconciliation Statement is a statement

prepared to reconcile the difference between the
balances as per cash book and pass book as on a
particular date.
 Purpose of Bank Reconciliation Statement
 The purpose of preparing the Bank Reconciliation Statement is to identify the
differences between the bank pass book balance and cash book balance, in order to
process necessary adjustments or corrections.
 Bank Reconciliation Statement is prepared periodically to check that all transactions
relating to the business are properly recorded in the cash book as well as in the pass
book.
 Periodic checking helps to detect the errors relating to transactions and also helps to
ascertain the correct balance on a particular date.
 The balances of Cash Book and the Pass Book must tally.
 These two balances must agree with each other, because the same transactions are
recorded in both the books - cash book and pass book.
 Reasons for Differences in Cash Book & Pass Book
 Cheques issued but not presented for payment
 Cheques received and deposited into bank but not yet credited in the account
 Bank charges debited in the pass book
 Interest credited by the bank in the pass book
 Direct deposit by a customer into bank
 Cheques deposited in bank but returned dishonoured
 Cheques received but omitted to be banked
 Errors committed in recording the transactions by the firm/individual’ Errors
committed in recording the transactions by the bank
 Errors committed in recording the transactions by the bank
 Payments made by the bank, as per the standing instructions