Trial Balance is prepared on a specific date and it is not for a period to ascertain the arithmetic accuracy of the ledger accounts. Matching of Debit and Credit side of Trial Balance is not a guarantee that ledger accounts prepared are error free from errors.
TYPES OF ERRORS
Errors of Omission: These errors arise as a result of some act of omission on the part of the person responsible for the maintenance of books of account.
• Complete Omission
• Partial Omission
Errors of Commission: These errors arise when there is an error while recording, posting or balancing transactions. Following are few examples.
• Error in Balancing the Account
• Mistake in amount while posting
• Error in casting subsidiary books
Compensating Errors: These kind of error do no effect matching trial balance. These errors are neutralizing in nature, hence one error is compensated by other error or errors of opposite nature
ERRORS OF PRINCIPLE: These kind of error occur due to violation of certain principles of accounting.
ERRORS DISCLOSED BY TRIAL BALANCE
• Error in casting subsidiary books.
• Error in carrying forward the total of one page the next page.
• Error in totaling the trial balance.
• Error in posting from book of subsidiary record to ledger.
• Error in balancing an account.
• Error in preparation of debtors’ schedule and creditors’ schedule.
• Error in carrying a balance of an account to the trial balance.
• Omission of casting etc.
• Posting an amount on the wrong side of a ledger account.
• Double posting to an account.
ERRORS NOT DISCLOSED BY TRIAL BALANCE
• Errors of Complete Omission
• Errors of Commission
• Compensatory Errors
• Errors of Principle
• Recording Wrong Amount in Subsidiary Book
• Errors of Duplication
RECTIFICATION AFTER THE PREPARATION OF TRIAL BALANCE BUT BEFORE THE PREPARATION OF FINAL ACCOUNTS
• When a trial balance does not agree and reason for disagreement of trail balance cannot be found in order to avoid the delay in the preparation of final accounts, the difference in the trial balance is put to suspense account.
• Debit balance in suspense account is shown on assets side while credit balance is recorded on liabilities side.
• The Suspense Account will automatically be closed when all errors are located and rectified.
RECTIFICATION IN THE NEXT ACCOUNTING PERIOD
In case error is detected in the next accounting period then its rectification done in following manner
• If the account affected due to such error is not part of the trading and profit & loss account, the rectification is done in usual manner.
• if error involves an account having its impact on the profit, a Profit & Loss Adjustment Account is opened.
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