Trial Balance and Rectification of Errors

Trial Balance - a statement showing the balances, or total of debits and credits, of all the accounts in the ledger with a view to verify the arithmetical accuracy.

Objectives of Preparing the Trial Balance

 The trial balance is prepared to fulfill the following objectives :

1.  To provide a summary of balances of ledger accounts. 
2. To ascertain the arithmetical accuracy of the ledger accounts. 
3. To help in locating errors.
4. To help in the preparation of the financial statements. (Profit & Loss account and Balance Sheet).

Format of Trial Balance

Account Titles	Debit	Credit
Total

Error Rectification

Types of Errors:

1. Errors of Omission : When a transaction is completely/partially omitted from recording in the books or posting in the ledger.

Example:

a. Error of complete omission - credit sales to Mohan Rs. 10,000, not entered in the sales book. These errors do not affect the trial balance.

b. Error of partial omission - credit sales had been duly recorded in the sales book but the posting from sales book to Mohan’s account has not been made.

These errors affect the trial balance.

2. Errors of Commission : Errors which are committed due to wrong posting of transactions, wrong totalling or wrong balancing of the accounts, wrong casting of the subsidiary books, or wrong recording. These errors affect the trial balance. Example: Debtor’s A/c debited by Rs 15,000 instead of Rs 1,500. 

3. Errors of Principle :  If any of the accounting principles are violated or ignored, errors resulting from such violation are known as errors of principle.These errors do not affect the trial balance.Example:  credit purchase of machinery is recorded in purchases book instead of journal proper, repairs on machinery charged to machinery account.

4. Compensating Errors : When the effect of one error gets compensated by that of another, such errors are known as compensating errors.These errors do not affect the trial balance.Example: Ram’s account debited by Rs 100 instead of Rs 1000, Shyam’s account debited by Rs 1000 instead of Rs 100.

Suspense Account

Suspense account is an account to which difference of trial balance is recorded.