Financial Accounting Part 6

Financial and Management Accounting Unit 6
Unit 6 Trial Balance

Structure:
6.1 Introduction
6.2 Meaning
6.3 Objectives
6.4 Methods of preparing trial balance
6.5 Preparation of Trial balance
6.6 Errors and their rectification
6.7 Errors disclosed by Trial Balance
6.8 Errors not disclosed by Trial Balance
6.9 Steps to locate the errors
6.10 Trial Balance and adjustments
6.1 Introduction
Journal and ledger are the books containing the details of business
transactions which have taken place during a particular period. The purpose
of these records is preparation of final accounts – trading account, profit and
loss account and balance sheet. Before attempting to prepare final
accounts, a summary of the transactions, as depicted by ledger should be
available in a form that is easy to classify the assets, liabilities, expenses
and incomes. While expenses and incomes are used to prepare trading and
profit and loss accounts, assets and liabilities are presented in the balance
sheet. Trial Balance stands as a bridge between primary and secondary
books on one hand and final statements of accounts on the other hand.
Learning Objectives:
After studying this unit, you should be able to understand the following:
1. To know the meaning and format of trial balance.
2. To understand the objectives of preparing a trial balance
3. To know the guidelines to prepare a trial balance.
4. To identify and rectify the errors that can be disclosed by trial balance
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5. To identify and rectify the errors that can not be disclosed by trial
balance
6. To know the steps to locate the errors.
7. To prepare trial balance after incorporating adjustments.
6.2 Meaning
Trial Balance is a statement containing the various ledger balances on a
particular date. It is used to verify the equality of debits and credits in the
ledger. When the total of debit balances equals the total of credit balances,
the ledger is said to be in balance. A trial balance is prepared as follows:
TRIAL BALANCE AS ON 31ST MARCH, - - - -

Debit Credit
Particulars
Rs. Rs.
Cash account 1,20,000

Capital account 1,00,000
Purchases account 40,000
Mohan account (creditor) 20,000
Sales account 40,000
Total 1,60,000 1,60,000
Self Assessment Questions 1:

1. The purpose of preparing journal and ledger accounts is to prepare
__________.
2. The final accounts include _________, ____________ and ________.
3. Trial balance is regarded as a bridge between primary and secondary
books and preparation of final accounts (True / False ).
4. Trial balance contains debit balances and credit balances. (True / False )
5. If trial balance tallies, balance sheet also tallies. (True / false )
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6.3 Objectives
There are three objectives of preparing a trial balance.
a) To check the arithmetic accuracy of entries made. In double entry, every
debit has an equivalent credit. Even in General Journal, we have seen
that the total of debits equals the total of credits. Similarly, if the debits
and credits tally in a trial balance, it indicates that the books of account
are arithmetically accurate. If the two sides do not tally, it is sure that
errors have crept in.
b) Basis for financial statements. As stated earlier, trial balance is a bridge
between ledger and final statements. It is only through trial balance,
trading account, profit and loss account and balance sheet are prepared.
If trial balance tallies, it means that the final statements should invariably
tally.
c) It is a summarised ledger. The position of a ledger account be judged
simply by looking at the trial balance. It is because, all ledger accounts,
after being balanced, are grouped as those showing debit and those
showing credit balances. They must be equal in value.

1. Trial balance checks the arithmetic accuracy of debits and credits ( state
True / False)
2. Trial balance is a summary of ledger accounts. So, if ledger accounts
are properly prepared and balanced, trial balance tallies ( state True /
False).
6.4 Methods of preparing Trial Balance

Totals method and Balance method are the two techniques of preparing trial
balance. In the first method, the totals of debits and credits of every account
are shown in the trial balance. For instance, a cash account shows
Rs.45000 as debit total (Receipts) and Rs35000 as credit total (Payments).
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Both these totals are carried to trial balance. The same logic is applied for
all other accounts. Then also the trial balance tallies In the second method,
instead of transferring the totals of both debit and credit, the net balance
Rs.10000 (45000 – 35000) is shown on the debit side of trial balance. Same
principle is adopted for all other accounts. The trial balance tallies. In the
former method, more details can be understood but it is cumbersome. The
second method gives the gist of the account and second method is popular.

1. Trial Balance is prepared either under total method or balance method
(True / False).
2. Which method is popular ?
3. What ever be the method of preparing trial balance, debit total should be
equal to total of credit (True / False ).
6.5 Preparation of Trial Balance

A trial balance can be prepared just as an account having debit side and
credit side. It can also be prepared by enlisting all ledger accounts one
below the other and showing their respective debit or credit balances on
separate columns. Both methods are equally prevalent.
However, the following steps should be followed to prepare a Trial Balance.

a) Prepare the ledger accounts
b) Balance them at the end of accounting period
c) Group all accounts showing debit balance and show them of left hand
side of trial balance
d) Group all those accounts showing credit balance and show them on the
right hand side of trial balance.
e) Total the debits and credits and they must be equal, what ever be the
method of preparing the trial balance.
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1. How do you prepare trial balance ?
2. If total of debits and credits do not tally, do you suspect any errors ?
Illustration:
The following are the ledger accounts of Mr. X as on 31st December, 1998.
Prepare a trial balance.
Dr. Cash Account Cr.
Amount Amount
Date Particulars Date Particulars
Rs. Rs.
1-4-04 To balance b/d 50,000 6-4-04 By Cash 5,000
2-4—04 To Sales 45,000 10-4-04 By Kumar 29,000
16-4-04 To Mohan 35,000 14-4-04 By Purchases 50,000
26-4-04 To Sales 10,000 18-4-04 By creditors 20,000
20-4-04 By Furniture 5,000
22-4-04 By Wages 500
By Printing 1,000
By Comm 2,000
30-4-04 By Electricity 500
By Telephone 1,000
By salaries 4,000
By balance c/d 22,000
1,40,000 1,40,000
1-5-04 To balance b/d 22,000
Building Account
Amount Amount
Rs. Rs.
1-4-04 To balance b/d 2,00,000 30-4-04 By balance c/d 2,00,000
1-5-04 To balance b/d 2,00,000
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Furniture Account
Date Particulars Amount Date Particulars Amount
Rs. Rs.
1-4-04 To balance b/d 10,000 30-4-04 By balance c/d
20-4-04 To Cash 5,000 15,000
15,000 15,000
1-5-04 To balance b/d 15,000
Bank Fixed Deposit Account

Amount Amount
Rs. Rs.
1-4-04 To balance b/d 1,00,000 30-4-04 By balance c/d 1,07,000
12-4-04 To Interest 7,000
1,07,000 1,07,000
1-5-04 To balance b/d 1,07,000
Stock Account
Amount Amount
Rs. Rs.
1-4-04 To balance b/d 25,000 30-4-04 By balance c/d 25,000
1-5-04 To balance b/d 25,000
Creditor’s Account
Amount Amount
Rs. Rs.
18-4-04 To Cash 20,000 1-4-04 By balance b/d 35,000
30-4-04 To balance c/d 15,000
35,000 35,000
1-5-04 By balance b/d 15,000
Capital Account
Amount Amount
Rs. Rs.
30-4-04 To balance c/d 3,50,000 1-4-04 By balance b/d 3,50,000
35,000 3,50,000
1-5-04 By balance b/d 3,50,000
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Purchases Account
Amount Amount
Rs, Rs.
4-4-04 To Kumar 30,000 30-4-04 By balance c/d 95,000
14-4-04 To Cash 50,000
To Sarin 15,000
95,000 95,000
1-5-04 To balance b/d 95,000
Sales Account
Amount Amount
Rs. Rs.
30-4-04 To balance c/d 95,000 2-4-04 By Cash 45,000
8-4-04 By Mohan 40,000
26-4-04 By Cash 10,000
95,000 95,000
1-5-04 By balance b/d 95,000
Kumar Account
Amount Amount
Rs. Rs.
10-4-04 To Cash 29,000 4-4-04 By Purchases 30,000
To discount 1,000
30,000 30,000
Repairs Account
Amount Amount
Rs. Rs.
6-4-04 To Cash 5,000 30-4-04 By balance c/d 5,000
5,000 5,000
1-5-04 To balance b/d 5,000
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Mohan Account
Amount Amount
Rs. Rs.
8-4-04 To sales 40,000 16-4-04 By Cash 35,000
30-4-04 By balance c/d 5,000
40,000 40,000
Discount Received Account

Amount Amount
Rs. Rs.
30-4-04 To balance c/d 1,000 10-4-04 By Kumar 1,000
1,000 1,000
1-5-04 By balance b/d 1,000
Interest on Fixed Deposit Account

Amount Amount
Rs. Rs.
30-4-04 To balance c/d 7,000 12-4-04 By Bank FD 7,000
7,000 7,000
1-5-04 By balance b/d 7,000
Wages Account
Amount Amount
Rs. Rs.
22-4-04 To Cash 500 30-4-04 By balance c/d 500
500 500
1-5-04 To balance b/d 500
Printing Account
Rs. Rs.
1,000 1,000
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Commission Account
Amount Amount
Rs. Rs.
2,000 2,000
Electricity Account
Rs. Rs.
30-4-04 To Cash 500 30-4-04 By balance c/d 500
500 500
1-5-04 To balance b/d 500
Telephone Account
Amount Amount
Rs. Rs.
1,000 1,000
Salaries Account
Amount Amount
Rs. Rs.
4,000 4,000
Sarin’s Account
Amount Amount
Rs. Rs.
30-4-04 To balance c/d 15,000 28-4-04 By Purchases 15,000
15,000 15,000
1-5-04 To balance b/d 15,000
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Solution
TRIAL BALANCE AS ON 30TH APRIL, 2004
Debit balances Amount Rs. Credit balances Amount Rs.
Cash 22,000 Creditors 15,000
Building 2,00,000 Capital 3,50,000
Furniture 15,000 Sales 95,000
Bank FD 1,07,000 Discount received 1,000
Stock 25,000 Interest on FD 7,000
Purchases 95,000 Sarin 15,000
Repairs 5,000
Mohan 5,000
Wages 500
Printing 1,000
Commission 2,000
Salaries 4,000
Telephone 1,000
Electricity 500
Total 4,83,000 Total 4,83,000
6.6 Errors and their rectification

An error is unintentionally committed mistake. Trial Balance, if does not tally,
is a clear indication that there are some errors committed. The errors may
be committed at various stages – journalizing, posting, casting (totaling),
balancing, transferring to trial balance and so on. Mere tallying the trial
balance does not ensure error free statement. For example, if a transaction
is completely omitted, the trial balance still tallies. But there is inherent error.
Errors whether disclosed or not disclosed by trial balance, have to be
corrected or rectified in order to obtain the correct picture of profit or loss. It
should be remembered that errors will have their impact not only on profit
but also on the asset and liability position of the business organization.
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1. Errors can be committed at all stages, commencing from journalizing,
posting, costing, balancing, transferring the closing balances, etc. (True /
False).
2. Errors of omission, error of principle and compensating errors are not
disclosed by trial balance (True / False).
3. Errors of costing, posting to wrong side of an account, wrong amount etc
can be detected by trial balance (True / False).
6.7 Errors disclosed by Trial Balance

Those errors that can be disclosed by trial balance can easily be located. As
soon as the trial balance does not tally, the accountant can proceed to find
out the spots where the errors might have been committed. The total
amount of difference in the trial balance is temporarily transferred to a
‘Suspense Account’ so that it can be mitigated as and when the errors get
rectified. Therefore the suspense account gets debited or credited as the
case may be for rectification of this type of errors. The following are the
errors which are disclosed by trial balance:
a) Posting a wrong amount: While posting an entry from subsidiary book
to ledger,
b) this mistake may happen. For example, Cash received from Rama
Rs1150 is posted to Rama’s ledger account as Rs.1500, while it is
correctly recorded in cash account. As a result of this error, trial balance
does not tally. To rectify this Rama’s account should be debited by
Rs350 (1500 – 1150) and credit should be given to suspense account.
c) Posting to the wrong side of an account: This error is committed

while posting entries from subsidiary books to ledger. For instance,
Sales made to Krishna Rs5000 is transferred to credit side of Krishna’s
account in the ledger. This error can be rectified by debiting Krishna’s
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account by Rs. 1000 and crediting suspense account. Note that the
amount debited is double the actual amount.
d) Wrong totaling: Both under casting and over casting are detected by
trial balance. If any account is wrongly totaled, it gets reflected in the trial
balance. To illustrate, purchases book total is Rs.5800. If it totaled as
Rs.5700 or 5900, the difference will be shown in the trial balance. To
rectify this, first find out what is the normal balance shown by the
account wrongly totaled. If it is debit balance and it is under cast, the
same account can be debited and credit is given to suspense account. If
it is over cast, the respective account should be credited by the amount
of difference and debit is given to suspense account. It is quite opposite
in case the respective account is one which normally shows credit
balance.
e) Omitting to post an entry from subsidiary book to ledger: If an entry

made in the subsidiary book does not get posted to ledger, the trial
balance does not tally. For instance, rent paid Rs2000 recorded in cash
account but is not posted to rent account at all. To rectify such error, the
respective account should be debited or credited as the case may be
and suspense account is credited or debited as the case may be.
f) Omission of an account altogether from being shown in trial

balance: For instance, advertisement account which shows a debit
balance is completely omitted from trial balance. This can be rectified by
bringing it to trial balance and suspense account can be credited and
advertisement account is debited.
g) Posting an amount to a correct account more than once: This

results in imbalance in the trial balance. The concerned account which is
posted twice should be cancelled and suspense account to be suitably
debited or credited as the case may be.
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h) Posting an item to the same side of two different ledger accounts: If

two accounts are debited /credited for the same transaction, this type of
error occurs. For example, Furniture purchased should be debited to
furniture account only. If it is posted to furniture account and purchases
account, then the difference arises in the trial balance. To rectify this, the
ledger account to which it is debited wrongly should be credited and
suitably suspense account is debited.

1. Suspense account is the difference between debit total and credit total
of a trial balance. (True / false ).
2. Suspense account is created temporarily and later, it is removed as and
when errors are detected and suitable rectified (True / False ).
3. if amount paid to Rama Rs 500 is credited to Ramanan accounts, what
rectification entry should be made ?
4. Instead of putting Rs. 1500 to debit of wages account, Rs 15000 is
recorded. What impact, it has an profit ?
5. How do you rectify the above error ?
6. Telephone expenses of Rs 2500 is entered in cost account but not
posted to ledger. How do your rectify ?
7. Rs. 2116 interest paid an loan is posted to interest accounts once as Rs
2611 and second time as Rs. 2161. How do you rectify?
6.8 Errors not disclosed by Trial Balance

There are four errors regarded as those which do not affect trial balance and
it is difficult to locate them. A brief description of the four errors is offered in
the following paragraphs:
a) Error of omission: Error of omission occurs when a transaction is
completely omitted from the books of accounts. If purchase of goods
from Jairam on credit is not recorded at all either in the general journal
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or in the purchases book, it is termed as error of omission. Since both

aspects – debit and credit – of the transaction are missing, the trial
balance is not affected at all. To rectify such errors, the transaction
should be recorded when it is traced.
b) Error of commission: If the error of wrong posting, wrong casting,
wrong calculation etc., committed in the books of original entry or ledger,
it is said to be error commission. For instance, purchase invoice of
Rs.1730 may have been entered as Rs.1370 in the purchases book
itself, then in the subsequent ledger accounts, the same mistake
continues and thereby can not be disclosed by trial balance. The
difference of Rs.360 (1730-1370) should be added to purchases account
and to the respective supplier’s account. The error can be detected only
when the original invoice is referred to after getting the complaint from
the supplier. In the above example, purchases account is debited and
the concerned supplier’s account is credited to rectify the error. Such
errors have repercussion on the profit or loss of the organization. From
the above example, additional purchases will have to be incorporated
and to that extent the expenses will be increased or profit will be
affected.
c) Error of principle: While drawing journal entries, often error of principle
is committed and this goes un noticed because it does not affect the
total of trial balance. For instance, ‘wages’ paid to workers engaged in
the construction of building of the organization, constitutes part of the
cost of the building. So the wages paid should be debited to building
account but not wages account. If the building account is debited, the
value of the asset appears in the balance sheet and the expenditure is
actually capitalized. In case the wages are treated as usual revenue
expenditure, they are deducted from profit. The error here is wages
account is debited and not building account. Therefore to rectify this,
Page No.: 122

building account should be debited and wages account should be

credited to erase. Similarly, treating incomes as liabilities, providing
insufficient provision for bad and doubtful debts, inadequate depreciation
against assets etc., come under errors of principle. They must be
rectified by applying the correct principles of accountancy.
d) Compensating errors: It is also called off-setting error. Compensating
error is one which is counter balanced by another error. If the account of
Mr. X is to be debited for Rs1000, but it is debited for Rs100 while the
account of Mrs X account is to be debited Rs.100 but it is debited by
Rs.1000, the first error is compensated by the second error and
therefore the trial balance is not affected. This comes to light only at a
later stage. To rectify the error, Mr. X account should be debited by
Rs.900 where as Mrs. X account should be credited by Rs.900.

1. If error of wrong posting, wrong costing, wrong calculation are committed
in the books of original entry or secondary books, such errors are called
________.
2. Error of commission affects trial balance (True / False).
3. Furniture purchased for cash Rs 5000/- is not recorded in journal. What
type of error is this ?
4. Error of omission can be detected only after a careful review of ledger
balances of previous years (True / False).
5. Error of principle affects the value of revenue and capital items (True /
False).
6. It is very difficult to find out the compensating errors. (True / False).
6.9 Steps to locate the Errors

The following steps help to locate the errors. In spite of the efforts, if the
difference in the trial balance persists, a suspense account may be created
Page No.: 123

and subsequently the suspense account can be eliminated as and when the
errors are located and rectification is made.
i) Check both sides of the trial balance to ensure that mistake of totaling
is not there.
ii) Check the totals of debtors and creditors accounts
iii) Find out whether all ledger balances are carried to trial balance
iv) Verify the totals of all ledger accounts
v) Divide the amount of difference in the trial balance by 2 and see if any
item of the debit or credit side, equal to that amount has been posted
to the opposite side.
vi) Check whether the opening balances are brought down correctly from
the previous accounting period
vii) Make a comparison with trial balance of the previous year to find out if
there are any items missing.
viii) Where the difference in the trial balance is divisible by 9 then the
difference is likely to be due to misplacement of figures like 12 for 21;
24 for 42;36 for 63 and so on.
6.10 Trial Balance and adjustments

When errors are located, they should be rectified. It is not a good practice
nor does it have any legal sanction to erase the mistakes and re write the
correct ones. Rectification entries are recorded in General journal or journal
proper. The following illustrations are given to show how to rectify the
different types of errors.

1. Summary of all ledger balances is called ______________________ .
2. Trial balance is necessary to prepare _________________________ .
3. The broad two categories of errors are a) ________________
b) ____________.
Page No.: 124

4. Is Casting error, an error of principle or error of commission?

5. Purchase of machinery is included in the purchases book. What type of
error is it?
6. What is error of omission? Illustrate.
7. What are the errors that can not be disclosed by trial balance?
8. The sum of errors in accounting is transferred temporarily to
_________ account.
9. In which journal do you make rectification entries?
10. State any four steps to locate errors.
11. If sales account is under cast by Rs. 45, what is the rectification entry?
12. Returns inwards book is over cast by Rs. 9, write rectification entry.
13. salary paid to Gopal is debited to his personal account. What is the
rectification entry to correct the error?
14. Discount received Rs. 50 is transferred to the debit side of discount
account. Write the rectification entry.
15. An invoice of purchase for Rs. 760 is entered as Rs. 670. What type of
error is this? How to rectify this error?
Illustration 1
An accountant finds that the trial balance of his client did not tally and it
showed an excess credit of Rs. 69.74. He transferred it to a suspense
account and later discovered the following errors.
a) Rs. 44.37 paid to Anand has been credited to his account as Rs. 34.37.
b) A purchase of Rs. 145.50 has been posted as Rs. 154.50 to the
purchases account
c) An expenditure of Rs. 158 on repairs has been debited to the Buildings
account
d) Rs. 80 was allowed by B as discount which has not been entered in the
books.
Page No.: 125

e) A sum of Rs.125.05 realized on the sale of old furniture has been posted
to the sales account.
Give journal entries to rectify the errors and show the suspense account as
it would appear after adjustments.
Solution
Date Particulars LF Debit (Rs.) Credit (Rs.)
1 Anand’s account Dr 78.74
To suspense account 78.74
(Being wrong amount, wrongly
credited to Anand’s a/c rectified)
2 Suspense account Dr 9.00
To Purchases account 9.00
(Being over debit of purchase
account rectified)
3 Repairs account Dr 158.00
To Buildings account 158.00
(Being wrong debit given to
building account rectified)
4 B’s account Dr 80.00
To Discount received a/c 80.00
(Being discount received from B,
omitted earlier, brought to
account)
5. Sales account Dr 125.05
To old furniture account 125.05
(Being sale of old furniture
wrongly transferred to sales
account rectified)
Page No.: 126

Suspense Account
Amount Amount
Rs. Rs.
To Difference in trial balance 69.74 By Anand’s a/c 78.74
To Purchases a/c 9.00
78.74 78.74
Note:
1. The excess of credit balance of trial balance means that the total of
credit is more than debit by Rs69.74 and so the difference is shown on
the debit side of suspense account.
2. When amount is paid to Anand, his account should have been debited.
On the other hand, his account was credited and that too with a wrong
figures. To rectify this double error, Anand’s account has to be debited
with Rs.78.74 (Rs.44.37 + 34.37) and the suspense account is credited.
3. Purchases account was over debited by Rs9 and so Purchases account
is credited to nullify the effect and suspense account is debited.
4. Repairs spent on building are, by mistake, debited to buildings account.

This is error of principle. So repairs account is debited and buildings
account is credited to rectify the mistake.
5. Discount received from B has not been taken to records. This is an error
of omission. Therefore, it is now brought to accounts. This has not
affected the trial balance.
6. When old furniture is sold, the furniture account should have been
credited. On the other hand, sales account was credited against to the
principle of accounting. To rectify the error, sales account is debited and
old furniture account is credited.
Page No.: 127

Illustration 2
The trial balance of Evergreen Co Ltd., taken out as on 31st December,
2002 did not tally and the difference was carried to suspense account. The
following errors were detected subsequently.
a) Sales book total for November was under cast by Rs1200.
b) Purchase of new equipment costing Rs.9475 has been posted to

Purchases A/c.
c) Discount received Rs1250 and discount allowed Rs850 in September

2002 have been posted to wrong sides of discount account
d) A cheque received from Mr Longford for Rs.1500 for goods sold to him
on credit earlier, though entered correctly in the cash book has been
posted in his account as Rs.1050
e) Stocks worth Rs.255 taken for use of Mr Dayananda, the Managing

Director, has been entered in sales day book.
f) While carrying forward, the total in Returns Inwards Book has been
taken as Rs.674 instead of Rs.647.
g) An amount paid to cashier, Mr. Ramachandra, Rs.775 as salary for

November month has been debited to his personal account as Rs757.
Pass journal entries and draw up the suspense account.
Page No.: 128

Solution
Journal Proper of Evergreen Co Ltd.,

Date Particulars LF Debit Credit
Rs. Rs.
31-12-2002 Suspense account Dr 1,200
To Sales account 1,200
(Being under casting of sales book
rectified)
31-12-2002 New Equipment account Dr 9,475
To Purchases account 9,475
(Being wrong debit given to
purchases account rectified)
31-12-2002 Discount allowed account Dr 1,700
Suspense account Dr 800
To Discount received a/c 2,500
(Being discount received and
discount allowed posted to wrong
sides of discount account rectified)
31-12-2002 Suspense account Dr 450
To Longford account 450
(Being short credit given to Longford
rectified)
31-12-2002 Sales account Dr 255
To suspense account 255
(Being stock used for personal
purpose wrongly credited to sales
account rectified)
31-12-2002 Suspense account Dr 27
To Returns Inwards account 27
(Being excess debit given to returns
inwards account to the extent of
Rs27, now rectified)
31-12-2002 Salary account Dr 775
To Ramachandra ‘s a/c 757
To Suspense a/c 18
(Being the wrong debit of salary to
the personal account of
Ramachandra now rectified)
Page No.: 129

Dr SUSPENSE ACCOUNT Cr
Amount Amount
Particulars Particulars
Rs. Rs.
To sales account 1,200 By Sales 255
To Discount received a/c 800 By Salary 18
To Longford 450 By balance c/d 2,204
To Returns Inwards a/c 27
Total 2,477 Total 2,477
Terminal Questions
1. Prepare a trial balance from the following
Amount Amount
Particulars Particulars
Rs. Rs.
Purchases 8,225 Premium on lease 1,200
Wages 1,025 Loan on mortgage 2,500
Sales 12,450 Plant and machinery 2,000
Arun’s capital 13,500 Provision for doubtful debts 300
Stock on 1-1-98 1,500 Sundry debtors 16,550
Salary 410 Trade charges 200
Rent and taxes 162 Bad debts 200
Sundry creditors 2,572
(Ans: Rs .31322).
2. The following Trial balance was extracted from the books Chetan, a
small businessman. Do you think that it is correct? If not, rewrite it in the
correct form.
Debits Rs. Credits Rs.
Stock 8250 Capital 10000
Purchases 12750 Sales 15900
Returns outwards 700 Returns inwards 1590
Discount received 800 Discount allowed 800
Wages and salaries 2500 Scooty 1750
Rent and rates 1850 Carriage charges 700
Sundry debtors 7600 Sundry Creditors 7250
Bank Overdraft 2450 Bills payable 690
(Ans: Rs. 37,790).
Page No.: 130

3. Mr. Abhijit was unable to tally Trial balance last year and wrote off the
difference to the Suspense account. He appointed a chartered
accountant who examined the old books and found the following
mistakes.
a) Purchase of a cycle was debited to conveyance account Rs.3000
b) Purchase account was over cast by Rs.10000

c) A credit purchase of goods from Padam for Rs4000 was entered as
sale.
d) Receipt of cash from Allum was posted to the account of Arun
Rs.3000
e) Receipt of cash from Cherag was posted to the debit side of his
account Rs.6000
f) Rs.1000 due by Mr. Zavahir was omitted to be taken to trial balance.
g) Sales of goods to Mr. Rajaram for Rs6000 was omitted to be
recorded.
h) Payment of Rs.5050 for purchase was wrongly posted as Rs.5500 in
purchases account..
Suggest the necessary rectification entries. Prepare suspense account.
Answer for Self Assessment Questions

1. Final Accounts
2. Trading A/c, P & L A/c, Balance sheet.
3. True
4. True
5. False
Page No.: 131


1. True
2. True

1. True
2. Balance method
3. True

1. Group all ledger accounts showing debit balance and group all accounts
showing credit balance. summaries them total of debit is equal to total of
credit.
2. Yes

1. True
2. True
3. True

1. True
2. True
3. Rama account should be Debited by Rs 500, Ramanan’s account
should be debited by Rs 500 and credit should be given suspense
account Rs 1000.
4. Profit – (gross ) is Reduced by Rs 13500.
5. Wages account is credited by Rs 13500 and debit is given to suspense
A/c.
6. Telephone expenses account is debited and suspense account is
credited
7. Total amount debited to interest account is Rs 2611 + 2161 = 4772.
Page No.: 132

The correct amount by crediting interest account and debiting suspense

account with similar amount.

1. Error of commission
2. False
3. Error of omission
4. True
5. True
6. True

1. Trial balance.
2. final accounts
3. Error that are disclosed by trial balance and those which cannot be
disclosed by trial balance.
4. Error of commission.
5. Error of principle.
6. Omitting completely a transaction from books of original entry. Sales
made to Raghu Rs 120 completely ignored.
7. Error of omission, commission, principle, compendating error.
8. suspense account.
9. Journal proper
10. check the total of both sides of trial balance, total debtors & creditors,
verify whether balancing is done correctly, check the totals of ledger
balances etc.
11. suspense account is debited and sales account is credited.
12. suspense a/c is debited and sales returns a/c is credited.
13. Salary a/c is debited and Gopal a/c is credited.
14. Discount a/c is credited by Rs 100 and suspense a/c is debited
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15. This is an error of omission. By checking the original invoice

document, it can be rectified. Debit purchases account and credit the
creditor’s account.
Terminal Question Answers :

1. Refer to unit 6.5 Ans – Rs 31322
2. Refer to Unit 6.5 Ans – Rs 37790
3. Refer to unit 6.10 Ans Suspense A/c Excess debit over Credit is Rs
5450.
Page No.: 134

Financial Accounting Part 6

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Financial Accounting Part 6

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Financial and Management Accounting Unit 6

Unit 6 Trial Balance

Page No.: 109

TRIAL BALANCE AS ON 31ST MARCH, - - - -

Cash account 1,20,000

Self Assessment Questions 1:

Page No.: 110

Self Assessment Questions 2:

6.4 Methods of preparing Trial Balance

Page No.: 111

Self Assessment Questions 3:

6.5 Preparation of Trial Balance

However, the following steps should be followed to prepare a Trial Balance.

Page No.: 112

Self Assessment Questions 4:

Page No.: 113

Bank Fixed Deposit Account

Page No.: 114

Page No.: 115

Discount Received Account

Interest on Fixed Deposit Account

Page No.: 116

Page No.: 117

6.6 Errors and their rectification

Page No.: 118

Self Assessment Questions 5:

6.7 Errors disclosed by Trial Balance

c) Posting to the wrong side of an account: This error is committed

e) Omitting to post an entry from subsidiary book to ledger: If an entry

f) Omission of an account altogether from being shown in trial

g) Posting an amount to a correct account more than once: This

Page No.: 120

h) Posting an item to the same side of two different ledger accounts: If

Self Assessment Questions 6:

6.8 Errors not disclosed by Trial Balance

or in the purchases book, it is termed as error of omission. Since both

Page No.: 122

building account should be debited and wages account should be

Self Assessment Questions 7:

6.9 Steps to locate the Errors

Page No.: 123

6.10 Trial Balance and adjustments

Self Assessment Questions 8:

Page No.: 124

4. Is Casting error, an error of principle or error of commission?

Page No.: 125

Page No.: 126

4. Repairs spent on building are, by mistake, debited to buildings account.

Page No.: 127

a) Sales book total for November was under cast by Rs1200.

b) Purchase of new equipment costing Rs.9475 has been posted to

c) Discount received Rs1250 and discount allowed Rs850 in September

e) Stocks worth Rs.255 taken for use of Mr Dayananda, the Managing

g) An amount paid to cashier, Mr. Ramachandra, Rs.775 as salary for

Pass journal entries and draw up the suspense account.

Page No.: 128

Journal Proper of Evergreen Co Ltd.,

Page No.: 129

Page No.: 130

b) Purchase account was over cast by Rs.10000

Suggest the necessary rectification entries. Prepare suspense account.

Answer for Self Assessment Questions

Page No.: 131