Account 6 Marks Question

Note: Closing Stock of ₹ 3,80,000 will not appear in Trial Balance, because it has not been accounted yet.

A trial balance can be prepared in the following three ways:

• Totals Method: In this method, the total of the debit and the credit side of the ledger is determined and presented separately in the trial balance. The total of both the sides should match as the accounts are based on double entry system.
• Balances Method: In this method, the balances of all ledger accounts are presented in their respective debit and credit columns of the trial balance. The total of both the sides should match as the accounts are based on double entry system and this method of preparing a trial balance is widely used because it helps in the preparation of financial statements.
• Totals-cum-balances Method: This method is a blend of the totals and balances method. This method has four columns. The first two columns are to write the totals of the debits and credits of the various accounts and the other two columns are to write the debit or the credit balances of these accounts. This method is time consuming, and hence are not used widely.

1. Purchases of ₹ 800 from Sachin have been omitted to be posted to his account. It is a mistake at the time of posting in the ledger. Since the entry in the Purchases Book is correct, total of Purchases Book will also be correct. The mistake is only in Sachin’s account where ₹ 800 has not been posted to the credit side of his account. So it would be rectified by crediting Sachin’s account with ₹ 800.

2. Purchases of ₹ 800 from Sachin have been posted to his account as ₹ 80. It is a mistake at the time of posting in the ledger. Because the entry in the Purchase Book is correct, so there is no mistake in Purchases account, the mistake will affect only Sachin’s Account where lesser amount has been credited to his account. So, ₹ 720 more will be credited to his account for rectification of this error.

3. Purchases of ₹ 800 from Sachin have been posted to his account as ₹ 880. It is a mistake at the time of posting in the ledger. Because the entry in the Purchase Book is correct, so there is no mistake in Purchases account, the mistake will affect only Sachin’s account where an excess amount of ₹ 80 is credited to his account. So ₹ 80 will be debited to his account for rectification of this error.

4. Purchase of ₹ 800 from Sachin have been posted to the debit side of his account. It is a mistake at the time of posting in the ledger. There is no mistake in Purchases account the mistake will affect only Sachin’s account. Sachin’s account has been wrongly debited with ₹ 800 instead of crediting his account. Hence rectification would be made by double the amount of entry.

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5. Purchase of ₹ 800 from Sachin have been posted to the debit side of his account as ₹ 80. It is a mistake at the time of posting in the ledger. There is no mistake in Purchases account the mistake will affect only Sachin’s account. Sachin’s account has been wrongly debited with ₹ 80 instead of crediting his account as ₹ 800. Hence rectification would be made by adding these two amounts and ₹ 880 will be credited to his account.

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Solution is as follows.

Note: As per the solution, suspense account shows the credit balance of ₹ 6,000. However, in the book the answer is credit balance of ₹ 1,000. So, in order to match the answer with the book item (d) is taken as, ‘Cash Sales to Rana ₹ 5,000 were not posted to the sales account.’ Thus, the rectifying entry of this error will be:

Suspense A/c	Dr.	5,000
To Sales A/c			5,000

Error of Omission:

3. Goods amounting to ₹ 2,000 have been returned to Chakravarti, but no entry has been made in the books.

8. Goods for ₹ 500 have been taken by the proprietor for his personal use, for which no entry has been passed in the books.

Error of Commission:

1. Purchased goods from Bhardwaj on credit for ₹ 600, but were recorded in the purchase book as ₹ 6,000.

5. Goods sold to Suresh for ₹ 650 were recorded as ₹ 560 in the Sales Book.

Compensating Error:

4. An excess debit of ₹ 4,500 has been made in the account of X, whereas Y's account has been credited by ₹ 5,000 instead of ₹ 500.

Error of Principle:

2. Amount paid for the proprietor’s life insurance premium was debited to 'General Expenses Account'.

6. Typewriter purchased for office use has been debited to Purchases Account.

7. Wages paid for the construction of Building ₹ 15,000 were recorded in "Wages Account'.

Solution is as follows.

The following are various steps that an accountant takes to locate the errors in the Trial Balance.

1. Re-totalling of the debit and the credit columns of the Trial Balance to locate the difference in the total of both the columns.
2. Checking whether any account is omitted to be recorded with the exact difference amount.
3. Half the difference, then check whether any amount is posted in the wrong column of the Trial Balance.
4. Divide the difference by 9, if it is completely divisible, it is an error of transposition of figure, i.e. 546 is written as 645.
5. If there exist differences especially of ₹ 1, ₹ 10, ₹ 100, ₹ 1000, etc., it suggests that the casting of Subsidiary Books should be checked once again.
6. If difference still exists and it is not possible to detect the reason for the difference, then for the time being, the difference is transferred in the suspense account in order to proceed further. Otherwise, a complete checking is suggested.

Solution is as follows.

Trial Balance is not a conclusive proof of the absolute accuracy of the books of account. If the Trial Balance agrees, it does not mean that there are no errors in the books of account. A tallied Trial Balance means that equal debits and credits have been recorded in the books of account. Even when Trial Balance agrees, some errors may remain undetected and may not be disclosed by the Trial Balance. Thus, the limitations of a 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 the 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 account cannot be detected.
4. Recording both aspects of a transaction twice in the books of account.
5. Posting correct amount on the correct side but in the wrong account is not reflected by the Trial Balance.
6. Wrong amount recorded in the books of original entry and same amount is debited and credited, is not brought out by the Trial Balance.

Drawings	Dr. Balances
Advance Rent Received	Cr. Balances
Bad Debts	Dr. Balances
Sales Return	Dr. Balances
Furniture	Dr. Balances
Bank Overdraft	Cr. Balances

Suspense Account: Suspense Account is the account to which the amount being the difference in trial balance is temporarily placed. If the total of debit side is short, Suspense Account will show debit balance. And if, the total of credit side is short, Suspense Account will show credit balance. The difference is placed in the Suspense Account so that final accounts are prepared without delay. As a result of this, Trial Balance will appear to agree.. However, the errors still remain in the Trial Balance which are identified and rectified.
Suspense Account is used for rectifying all One-Sided Errors: It is opened Due to errors any error in journal entries especially one-sided errors, There may be cases when Trial balance does not match i.e when the total of the debit column does not match that of the credit column, then the difference of the Trial Balance is transferred to a temporary account in order to avoid delay in preparation of the financial statements. This temporary account is termed as Suspense Account and it is prepared only in case of one-sided errors in the books of accounts.

Solution is as follows: