Trial Balance And Rectification Of Errors Class 11 Notes Accountancy Chapter 7 - CBSE

Chapter : 7

What Are Trial Balance And Rectification Of Errors ?

Trial Balance

Trial Balance is a statement which accounts all the balances of the Personal account, Real account, and Nominal account regardless of either Revenue or Capital A/c. It comprises two columns viz., debit and credit.

If the transactions are documented systematically by providing dual-sided effect and later posted methodically, then the total of both the columns would be similar.

In other words, a trial balance is a worksheet record book that reflects the debit and credit balance of all the registered accounts. This worksheet statement is used to prepare the final account report of the company. Trial balance also determines the accuracy of the account. However, it doesn’t ensure that the account is error-free but surely gives mathematical precision.

Objectives Of Preparing The Trial Balance

  • To determine the financial efficiency of the ledger accounts: The trial balance helps to keep a record all the credit and debit transactions properly in the ledger and to check if the accounts have been balanced correctly. If both the balance is correct, then it is assumed that the record of the trial balance is correct.
  • To help in the rectification of errors: Whenever the trial balance does not tally management should know that there is at least one error in the accounting process. Few errors that occur are.
    • Subsidiary book total
    • Recording journal entries in a ledger
    • Account balance calculation
    • Transferring account balance to the trial balance
    • Trial balance total
  • To help in the formation of the financial statements: To prepare a financial statement, the final trial balance is required. Here, all expense and revenue account registered in the trial balance is carried to the profit and loss account, and all liabilities, assets, and capital account is carried to the balance sheet.

Preparation Of Trial Balance

There are three ways in which a trial balance can be prepared.

  • Total Method: In this method, the total balance of the credit and debit is determined in an individual column and displayed in the trial balance. Both the column’s total should be equal as it is based on the double-entry system.
  • Balances Method: This method is used widely and is prepared by determining the balance of all the ledger
    account and then summing up the debit and credit total of the trial balance to ensure accuracy.
  • Total-cum-balance Method: This method is the amalgamation of both the total and balance method. In this method, four columns for the amount is made. Two for writing credit and debit totals and the other two for credit and debit balance of the account.

Rectification Of Errors

Correcting the errors of accounting by passing journal entry is known as Rectification of Error.

Classification of Errors

Errors of Omission

  • Omitting an entry completely from the Subsidiary Books. (Trial Balance will still match)
  • Omitting to post the Ledger Account from the Subsidiary Books. (Trial Balance will still match)

Errors of Commission

  • Writing the wrong amount in the Subsidiary Books. (Trial Balance will still match)
  • Posting an amount in the wrong account but on the correct side. (Trial Balance will still match)
  • Wrong casting of Subsidiary Books. (Trial Balance will not match)
  • Posting the wrong amount in the Ledger. (Trial Balance will not match)
  • Posting an amount on the wrong side. (Trial Balance will not match)
  • Casting and carrying forward of Subsidiary Books should be checked again.
  • If the errors remain undetected, try to locate the error by trial and error techniques.
  • If there is still a difference in the Trial Balance, a complete and deep checking is necessary.

Errors of Principle

  • Treating the sale of a fixed asset as ordinary sale. (Trial Balance will not match)
  • Treating a revenue expenditure as capital expenditure or vice-versa.

Compensating Errors

  • These kind of errors cancel each other.

Steps To Detect The Errors

  • Columns of the Trial Balance should be totaled again.
  • The list of Sundry Debtors and Sundry Creditors should be checked.
  • Recheck the balances of every account including cash and bank balances, if it is written in correct column of the Trial Balance or not.
  • Ledger Accounts should be balanced again.
  • Posting of amounts equal to half the difference should be checked.

Division of Rectification of errors

  • Before preparation of the Trial Balance:

(i) Errors which affect only One account or One-Sided errors

(ii) Two-sided Errors or Errors which affect two or more accounts.

  • After preparation of the Trial Balance but before preparation of the final Accounts:

(i) In case of Errors not affecting the Trial Balance or Two-sided Errors.

(ii) In Case of Errors affecting the Trial balance or One-sided errors.

Suspense Account

The suspense account is used as an interim measure, and the aim is to identify the correct account or ledger for the transaction and make the necessary adjustments or reclassifications to rectify the error. Once the correct information is obtained, the entry from the suspense account is moved to the appropriate account, and the suspense account is closed.