Errors that are not counterbalanced in the ordinary book
keeping process will keep subsequent
balance sheets in error until specific correcting entries are made.
A Trial Balance is very good way of giving a clear indication of some mistakes that may be there. This will be shown immediately, if the totals of the two columns of the trial balance differ. Thus, trial balance is essential to ensure that mistakes do not remain unearthed. However, the agreement of trial balance do not show conclusively that no mistakes have remain undetected. Some errors will not be disclosed by the trial balance whereas some will be. An agreed trial balance, therefore, is only a reasonable proof of arithmetic accuracy of books.
DIFFERENCE IN TRIAL BALANCE: ERRORS
Apart from error in totalling the two columns of trial balance, the following mistakes will be shown up by the trial balance , because then the trial balance will not agree:
(a) Mistake in transferring the balance of an account to Trial balance.
(b) Omitting to write the balance of an account in the trial balance.
(c) Mistake in balancing
(d) Making an entry on the wrong side.
(e) A mistake in the casting of subsidiary books.
(f) Omitting to post the discount columns of the cash book.
In spite of the agreement of the trial balance, the following types of error will not be disclosed because they do not upset the equation: DEBIT = CREDIT.
Omitting to record a transaction entirely in subsidiary books. A wrong entry in the subsidiary books.
1. Posting an entry on the correct side but in the wrong account head
2. An error of principle- where by an assets is transferred as an expense or liability is treated as an income.
3. Compensating errors.
CLASSIFICATION OF ERRORS
a) Error of omission
➢ A transaction entirely omitted to record in original books or partially omitted while posting
b) Error of commission
➢ Wrong posting either of amount or on the wrong side, or in the wrong account.
c) Error of principle
➢ Wrong classification of expenditure or receipt
d) Compensating error
➢ One error compensated by the error i.e. an error which cancels themselves out.
STEPS TO LOCATE A MISTAKES:-- The following steps are suggested to find out errors:
1. Total the debit and credit columns of trial balance again
2. See the balances of all accounts, including the cash and bank balances, have been written in the trial balance.
3. Find out the difference in die trial balance. Look for such accounts as show this amount it is possible that the balance of the particular account has been omitted from the trial balance. Account showing equal to half the difference should also be checked; the amount may have been written on the wrong side of the trial balance.
4. See that there are no mistakes in the balancing of the various accounts.
5. Recheck the totals of the subsidiary books, especially if the mistake is of 1,10,100 and so on.
6. If the difference is a large one, compare the figures with the trial balance of the corresponding date of the previous year, Any account showing rather large difference over the figure HI she corresponding trial balance of the previous year, should be rechecked.
7. Posting of all amounts corresponding to the differences or half the difference should be checked 8. If the differences are still not traced posting of all accounts will have to be checked.
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