ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Introduction to Trial Balance

Meaning of Trial Balance

Trial balance is a statement prepared to check the arithmetical accuracy of transactions recorded in the
journal and those posted to the ledger and balanced the ledger accounts. The balance of ledger accounts
shows the difference between the total of the debit items and credit items in an account. A debit balance
shows the total of debit items greater and a credit balance shows the total of credit items greater. These
debit and credit balances are posted in the respective column of the trial balance. According to the double
entry system, each debit item has a corresponding credit item. Hence, the total of the debit and credit
balances are equal for different accounts in the ledger. When the debit and credit balances are equal in
the trial balance, it is clear that all the posting and balancing of accounts are arithmetically correct.

According to Carter, a trial balance is the list of debit and credit balances, taken out from the ledger. It
also includes cash and bank balances taken from the cash book.

Features of Trial Balance

 It is a complete record of all ledger accounts and cash book
 It is prepared as a result of the double entry system of book keeping, thought it is not a part of it.
 It assists in verifying the arithmetic accuracy of posting entries from journal to ledger accounts
 It is not completely accurate to take any decision because there are some errors not disclosed in this
trail balance. It doesn’t disclose some of the errors because of which it is not considered as absolute
proof of accuracy.
 It is prepared on a particular date and considered as a working paper.

Functions of Trial Balance

Arithmetical Accuracy of Accounts

Prepares the Final Account

Identifies Errors

Summary of Accounts

 It helps to ascertain the arithmetical accuracy of ledger accounts.

 It assists in preparing the financial statement
 It provides a summary of the ledger accounts
 It identifies the errors in book keeping work but does not disclose all the errors in book keeping.

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Debit Balances- Assets, debtors, drawings, expenses and losses

Examples:
o Purchases
o Sales returns
o Machinery
o Rent
o Bills Receivable

Credit Balances- Liabilities, creditors, capital, incomes and gains

Examples:
o Sales
o Purchases returns
o Commission received
o Bank overdraft
o Bills payable

Methods of Preparing a Trial Balance

The three methods followed to prepare the trial balance are total method, balance method and total-cum-
balance method. We will learn only balance method in this section.

Balance Method for Preparing Trial Balance

A trial balance is prepared by depicting the balances of all the ledger accounts and placing the debit and
credit balances separately in the two columns. All the debit balances are recorded in the debit column and
all the credit balances are recorded in the credit column.

Trial Balance as on …
Heads of Accounts L.F. Dr. ` Cr. `

Specifics of Trial Balance

 A trial balance is prepared on a particular date which should be mentioned on the top
 Name of the account should written in the first column
 The page number of the ledger where the balance appears should be written in the ledger folio column
 In the last two columns, the debit and credit balances are to be written
 Finally, the two columns are added up.

Points to Prepare a Trial Balance

 Ledger and cash book are used to prepare the trial balance.
 The balances of all accounts– assets, liabilities, capital, expenses and revenue accounts (including
cash balance and bank accounts) are placed in the debit and credit column of the trial balance. An
account with no balance is not recorded.
 Opening stock account which has a debit balance is recorded in the debit column of the trial balance.
 However, closing stock is not recorded in the trial balance and is given as additional information below
the trial balance. It shows the balance of unsold goods from the opening stock and purchases. In order
to incorporate the closing stock in the books of account, debit the closing stock account and credit the
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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

trading account by the amount of unsold stock at the end. In the balance sheet, closing stock appears
as an asset on the assets side of the balance sheet.
 On the other hand, if the closing stock is to appear in the trial balance, then it needs to be adjusted
through purchases by debiting the closing stock and crediting the purchases account. Hence, closing
stock is not shown on the credit side of the trading account. However, it appears as an asset on the
asset side of the balance sheet.
 Accounts of assets with debit balance such as machinery, fixtures, land and building, bills receivable,
good will, trade mark, cash in hand, copyrights and patents are recorded in the debit column of the trial
balance.
 A debit bank balance is recorded in the debit column of a trial balance and a credit bank balance is
recorded in the credit column of a trial balance.
 A credit balance of incomes and gains are recorded in the credit column and debit balance of
expenses and losses are recorded iin the debit column of a trial balance.

Prepare a trial balance of Mr. Ramesh from the given ledger balances as on 31 St March, 2015.

Particulars Amount ` Particulars Amount `

Purchases 33,800 Return inwards 3,200
Carriage inwards 900 Carriage outwards 1,200
Unpaid wages 4,100 Cash in hand 3,800
Reserve for doubtful debts 1,300 Outstanding expenses 3,400
Interest received 5,900 Bank overdraft 12,600
Discount allowed 3,100 Debtors 7,400
Insurance 11,000 Creditors 37,100

Trial Balance as on 31st March, 2015

Particulars L.F. Debit Credit
Balance Balance
` `
Purchases 33,800
Return inwards 3,200
Carriage inwards 900
Carriage outwards 1,200
Unpaid wages 4,100
Cash in hand 3,800
Reserve for doubtful debts 1,300
Outstanding expenses 3,400
Interest received 5,900
Bank overdraft 12,600
Discount allowed 3,100
Debtors 7,400
Insurance 11,000
Creditors 37,100
Total 64,400 64,400
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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Limitations of Trial Balance

 A trial balance only shows that debit and credit balances are tallied. However, it does not mean that all
the recorded transactions and all the ledger entries, so made, are accurate.
 It is not absolutely error free because certain errors may occur such as omission to enter a particular
transaction, incorrect journal entry or entry made to the wrong account.

Classification of Errors

Omitting an entry completely from the

subsidiary books
(Trial Balance Agree)
Errors of Omission
Omitting to post the ledger account from
the subsidiary books
(Trial Balance Disagree)

Writing the wrong amount in the subsidiary

books
(Trial Balance Agree)

Posting an amount in the wrong account

but on the correct side
(Trial Balance Disagree)
Types of Errors
Wrong casting of subsidiary books
(Trial Balance Disagree)
Errors of
Commission
Posting the wrong amount in the ledger
(Trial Balance Disagree)
Errors of Principle
Posting the amount on the wrong side
(Trial Balance Disagree)
Compensating
Errors
Wrong balancing of an amount
(Trial Balance Disagree)

Errors of Omission
Error of omission is an error when a transaction is completely or partially missed from being recorded in
the books of account. Such errors are of two types:
 Complete Omission: This error arises when a transaction is not recorded completely in the books of
accounts or if a transaction recorded in the journal is completely omitted to be posted in the ledger.
This error does not affect the trial balance. For example, cash worth `1,000 taken by the proprietor for
personal use and not recorded in the books.
 Partial Omission: This error arises when a transaction is not completely recorded in the books or if
the entry is completely recorded but it may not be completely posted in the ledger of accounts. For
example, `600 written off as depreciation on machinery and not been debited to depreciation account.

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Errors of Commission
Errors of commission are committed because of wrong recording, wrong posting, wrong balancing and
wrong casting of subsidiary books. Such errors affect the accuracy of the trial balance.
o Cash received from a creditor worth `5,000 is recorded in the cash book as `500. The transaction
is recorded in the cashbook as `500 instead of `5,000. This is an error because of wrong recording
of amount in the cash book.
o Amount received from Arun, `2,000, is wrongly posted in Tarun’s account. In this transaction,
Tarun’s A/c is credited instead of Arun’s A/c. This is referred to as an error of wrong posting of
transactions.
o Purchases returns book is totaled as `8,000 instead of `10,000. In this transaction, there is an
error in totaling called an error of casting.
o The total of purchases returns book is carried forward as `6,000 instead of `2,000.This is an error
committed in carrying forward a total from one page to the next page. Such error called ’error in
carrying forward’.

Errors of Principle
Generally accepted accounting principles are to be followed while recording the accounting entries. When
accounting entries are recorded in contravention of accounting principles, it is known as an error of
principle. For example, wages paid for construction of building are debited to wages account.

Compensating Errors
When two or more errors occur in such a way that the net effect of these errors on the debits and credits
of respective accounts are nil, it is known as compensating errors.
For example, on 2nd March, 2016, a sum of `2,000 paid to Ashok was posted as `200 to his account on
the debit side and on 26th March, 2016, a sum of `200 paid to Dipesh was posted as `2,000 to his
account on the debit side.
In the first transaction, Ashok’s A/c was undercast by `1,800 on the debit side and in the second
transaction Dipesh’s A/c was overcast by `1,800 on the debit side. Hence, the net effect of these
transactions is zero.

One Sided Errors

One-sided errors are those errors which affect the agreement of the trial balance. These errors affect only
one account and only one side i.e. debit or the credit side of the account. Errors of partial omission,
recording transactions with wrong casting and wrong posting are examples of one-sided errors. For
example, goods worth of `3,000 purchased for cash, correctly entered in the cash book, but while posting
to purchase book, it is entered as `30,000. Thus, the transaction has been recorded wrongly in the
purchase book.

Two Sided Errors

Two-sided errors do not affect the agreement of the trial balance. These errors occur in two or more
accounts. Such errors are rectified by passing journal entries. Errors of complete omission, errors of
principle and compensatory errors are examples of two sided-errors. For example, credit purchases from
Sohan of `15,000 were not recorded in the purchases book; an error of complete omission because
purchases account is not debited and Sohan’s account is not credited.

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Steps to Identify the Errors

 Recast the totals of debit and credit columns of the trial balance
 Compare each account head and its amount appearing in the trial balance with that of the ledger to
detect any difference in amount or omission of any account
 Compare the trial balance of the current year with that of the previous year to check the additions or
deletions of any accounts and to verify if there is any unexplained difference in amounts.
 Re-check the correctness of balances of individual accounts in their respective ledgers.
 Re-check the accuracy of the postings in individual accounts from the transactions entered in the
books of original entry.
 If the difference between the debit and credit columns is `1, `10, `100 or`1000, the casting of the
subsidiary books should be re-checked.
 If the difference between the debit and credit columns is divisible by 2, then there is a possibility that
an amount equal to half of the difference may have been posted to the wrong side of another ledger
account.
 The above point may also indicate a complete omission of a posting.
 If the difference is divisible by 9, the mistake could be because of transposition of figures.
 Still, if it is not possible to locate the errors, the difference in the trial balance for that moment is
transferred to the suspense account. All the one-sided errors detected are rectified through this
account.

Rectification of Errors

Errors may or may not affect the trial balance. However, they must be identified and corrected for the
preparation of final accounts. Rectification of errors is the procedure to rectify the errors committed and to
correct the accounting records. . The main objectives for rectifying the errors are as follows:
 To prepare correct accounting records
 To ascertain the profit or loss of the accounting period by preparing the profit and loss account with the
correct amount
 To show the actual financial status of the company at a particular date by preparing the balance sheet
with the correct amount

Errors may be classified under the following categories:

1. Rectification of errors before the preparation of the trial balance
2. Rectification of errors after preparation of the trial balance but before the preparation of the final
accounts

Rectification of Errors before the Preparation of the Trial Balance

A. Errors which affect only one account or one-sided errors
One-sided errors are those errors which affect the agreement of the trial balance. These errors affect only
one account and one side i.e. debit or the credit side of the account. If these errors are identified before
the preparation of the trial balance, they are rectified by writing an explanatory note. Errors are rectified by
debiting the relevant account for short debit or excess credit and by crediting the account for short credit
or excess debit. Examples of errors which affect one account are casting, carry forward, posting,
balancing and omitting to show an account in the trial balance.

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Debit Account = Short Debit / Excess Credit

Credit Account = Short Credit / Excess Debit

 Rectification of errors caused by casting and carry forward

While carrying over the balance from one page to the next page, the error of carry forward or casting
arises. This error can be rectified by writing an explanation and by passing an appropriate entry.
For example, individual entries are correctly recorded in a sales return book but the totaling or casting of
the sales return book is undercast or overcast by `20,000. This error can be rectified by entering the
amount in the sales return account as To Undercasting of Sales Return Book `20,000.

KEY POINTS TO REMEMBER

Errors are corrected before the preparation of the trial balance. Hence, the correction is
made without the help of suspense account.
One-sided error can be rectified by passing a journal entry with the help of suspense
account.

o Casting: The process of totaling the amount of all the transaction recorded at the end of an
accounting period is called casting. Purchases book, sales book, purchases return and sales return
are posted in an individual account such as purchases, sales, purchases return and sales return
for a particular period i.e. the total amount of all the books except cash and journal proper are
posted to the ledger at the end of the accounting period.
o Errors of casting effect: Error of casting affects only the particular account to which the total of
the book is posted and where the total amount has been posted to the ledger. Here, the error may
be undercasting or overcasting if the total of the book is wrongly calculated.
o Undercasting: Undercasting of sales return book means under totaled amount in the sales return
book. This implies that the sales return account has been debited less with the amount of under
total of the sales return book.
o Overcasting: Overcasting of purchases return book means over totaled amount in the purchases
return book. This implies that the purchases return account has been credited more with the
amount of over total of the purchases return book.
o Occurrence of error in journal proper: Both the side entries of journal proper are posted with an
individual amount. For example, there is an error of omission in posting the transactions of journal
proper, say machinery purchased on credit from Mr. Ramesh for `1,20,000 was not posted. This
implies that machinery account and Mr. Ramesh account has not been posted.

 Rectification of errors of posting

Error of posting occurs while posting the entries from the subsidiary book into ledger account, an entry
is completely omitted to post or partially omitted to post or is posted with an incorrect amount or
posted to an incorrect account. These errors are identified with the help of certain key terms such as
posted, debited and credited.
o Posted: The appropriate side of the account where the amount is to be posted
o Debited: It stands for debit side of the account
o Credited: It stands for credit side of the account
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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

 Rectification of errors of balancing

Error of balancing arises during the process of totaling the balance of an account. This affects the trial
balance if an incorrect balance of the account is entered in it. In order to rectify the error of balancing,
an explanatory note is written either on the debit side or credit side of the account as per the
requirement.
Effect of Errors and their Rectification
Effect of Error Rectification
Excess credit Difference on the debit side
Excess debit Difference on the credit side
Less credit Difference on the credit side
Less debit Difference on the debit side
Credit omitted Omitted amount on the credit side
Debit omitted Omitted amount on the debit side
A credit item wrongly debited in the Amount to be credited plus amount wrongly
account debited on the credit side
A debit item wrongly credited in the Amount to be debited plus amount wrongly
account credited on the debit side

B. Two-sided errors which affect only two or more accounts

Two-sided errors are those errors which do not affect the agreement of the trial balance but arise in
two or more accounts. Such errors are rectified by passing the journal entries. Errors of complete
omission, errors of principle, errors of recording, errors of posting to wrong account and compensatory
errors are examples of two sided-errors.

 Error of Recording
Error of recording arises at the recording stage in the subsidiary book. It affects the two accounts
i.e. in the first stage, incorrect recording affects the totaling of the book and this wrong totaling gets
posted and in the second stage, individual account is also incorrectly posted. For example, credit
sale of `5,700 to Anjali was recorded as sales to Tina.

Wrong Entry
Tina A/c Dr. 5,700
To Sales A/c 5,700
Reverse Entry
Sales A/c Dr. 5,700
To Tina A/c 5,700
Correct Entry
Anjali A/c Dr. 5,700
To Sales A/c 5,700
Rectified Entry
Anjali A/c Dr. 5,700
To Tina 5,700

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

 Error of Posting to Wrong Account

Error of posting arises when a transaction is posted to the wrong account but on the
o Correct side and with the correct amount
o Correct side and with an incorrect amount
o Incorrect side and with an incorrect amount
o Incorrect side and with the correct amount
Here, an explanatory note is provided to rectify these errors. For example, machinery purchased
on credit from Seeta for `25,000 but posted as `2,500.

Wrong Entry
Machinery A/c Dr. 2,500
To Seeta A/c 2,500
Reverse Entry
Seeta A/c Dr. 2,500
To Machinery A/c 2,500
Correct Entry
Machinery A/c Dr. 25,000
To Seeta 25,000
Rectified Entry
Machinery A/c Dr. 22,500
To Seeta A/c 22,500

 Error of Principle
Error of principle arises during the allocation of expenditure or receipt between capital and
revenue. It does not affect the trial balance. Following points to be kept in mind during the
allocation:
o Purchase of an asset: Asset account will be debited but not purchases account
o Purchase of an asset and expense incurred in purchase of that asset: Asset account will be
debited but not the expense account. If the expense account is debited, it can be rectified by
crediting the expense account and debiting the asset account.
o Purchase of second-hand asset and if it has undergone repairing work before use: Here, the
repairing charges amount will be debited in the asset account but not in the repair account. If
the expense account is debited, it can be rectified by crediting the expense account and
debiting the asset account.
o Sale of an asset: Asset account will be credited but not the sales account. If the sales account
is credited, it will be rectified by debiting the sales account and crediting the asset account.
o Sale of an asset and its expense: Asset account will be debited but not the expense account.

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

For example, paid `8,000 for installation of plant debited to wages account.

Wrong Entry
Wages A/c Dr 8,000
To Bank A/c 8,000
Reverse Entry
Bank A/c Dr. 8,000
To Wages A/c 8,000
Correct Entry
Plant A/c Dr. 8,000
To Bank A/c 8,000
Rectified Entry
Plant A/c 8,000
To Wages A/c 8,000

For example, sold old furniture for `4,500 was passed through Sales Book.

Wrong Entry
Bank A/c Dr. 4,500
To Sales A/c 4,500
Reverse Entry
Sales A/c Dr. 4,500
To Bank A/c 4,500
Correct Entry
Bank A/c Dr. 4,500
To Furniture A/c 4,500
Rectified Entry
Sales A/c Dr. 4,500
To Furniture A/c 4,500

 Error of Complete Omission

Error of complete omission is directly recording the omitted transaction. For example, credit sale of
`6,500 to Nishant omitted to be recorded in books.

Correct Entry
Nishant A/c Dr. 6,500
To Sales A/c 6,500
Rectified Entry
Nishant A/c Dr. 6,500
To Sales A/c 6,500

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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

Rectification of Errors after Preparation of the Trial Balance but before

Preparation of the Final Accounts

 Errors not affecting the trial balance or two-sided errors are rectified by passing journal entry without
creating the suspense account.
 Errors affecting only one account or one-sided errors are rectified by
o Firstly, by placing the difference in the trial balance under the suspense account.
o Secondly, by passing the journal entry debiting or crediting the suspense account

Suspense Account
In certain cases, when the debit column and the credit column of a trial balance do not tally, the difference
of the trial balance is then transferred to a temporary account which is called a suspense account. This

KEY POINTS TO REMEMBER

If error is committed in the subsidiary books, assume that the posting has been done as per
the requirement.
If error is committed in posting, assume that recording in the subsidiary book is appropriate.

account is created to avoid any delay in creation of the financial statements. If the debit column is less
than the credit column, then the suspense account is debited and if the credit column is less than the debit
column, then the suspense account is credited.

When all the errors are detected and rectified, the suspense account automatically gets balanced.
However, when errors still exist and are not rectified, the suspense account will not balance off and the
balance amount of the suspense account will have to be transferred to the balance sheet. The debit
balance of the suspense account is shown on the assets side and the credit balance is shown on the
liabilities side of the balance sheet.

For example, purchases done from Rohan worth `10,000 recorded as `1,000. Here, the transaction is
recorded for `1,000 instead of `10,000. This is an error of wrong recording of amount. Purchases A/c
requires a further debit of `9,000 and Rohan’s A/c requires a further credit of `9,000. The rectifying entry
is:

Rectified Entry
Purchases A/c Dr. 9,000
To Rohan’s A/c 9,000
(Being goods purchased from Rohan of
`10,000 wrongly recorded as `1,000,
now rectified)

For example, sales book totaled as `5,000 instead of `50,000. Here, the total sales of the book are short
by `45,000. This error can be rectified by any of the following two:
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ACCOUNTANCY TRIAL BALANCE AND RECTIFICATION OF ERRORS

 If the error is located before preparing trial balance, then `45,000 should be recorded in the credit
side of sales account.
 If an error is located after preparing the trial balance, then assuming that a suspense account is
opened, the following entry needs to be recorded.

Rectified Entry
Suspense A/c Dr. 45,000
To Sales A/c 45,000
(Being sales book wrongly totaled as `5,000
instead of `50,000)

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