Trial
Balance
Q.N.1.What do you mean by trial balance?
Ans: Meaning: - After
posting the accounts in the Ledger, a statement is prepared to show separately
the debit and credit balances and to check the arithmetic accuracy of the
accounts of a certain periods such a statement is known as the Trial
Balance.
The
agreement of a trail balance ensures arithmetical accuracy only. A concern can prepare trail balance at any
time, but its preparation as on the closing date of an accounting year is
compulsory.
Definition:
According
to M.S. Gosav "Trail balance is a statement containing the balances of all
ledger accounts, as at any given date, arranged in the form of debit and credit
columns placed side by side and prepared with the object of checking the
arithmetical accuracy of ledger postings”.
Q.N.2.What is the objectives of trial balance? Mention its
features or characteristics.
Ans: - Objectives of Trial
Balance:
i) To Ascertain the Arithmetical
Accuracy of Ledger Accounts: The
agreement of a trail balance ensures arithmetical accuracy of books of books of
accounts.
ii)
To help in preparing Final Accounts: Financial statements are normally
prepared on the basis of the Trial Balances. Otherwise, the work may be
difficult, if not impossible. Preparation of financial statements,
therefore, is the second objective of preparing a Trial Balance.
iii)
Summary of Each Account: The trial balance offers a summary of the
Ledger. The ledger may have to be referred to only when more detail is required
in respect of an account.
iv)
To Help in Locating Errors: The Trial Balance helps in locating errors
in books-keeping work. It should, however, be noted that it does not disclose
all the errors in book-keeping work but only the arithmetical inaccuracies.
Features
of trial balance: The following are the important features of a
trail balances:
(i)
A trail balance is prepared as on a specified date.
(ii)
It contains a list of all ledger account including cash account.
(iii)
It may be prepared with the balances or totals of Ledger accounts.
(iv)
Total of the debit and credit amount columns of the trail balance must tally.
(v)
It the debit and credit amounts are equal, we assume that ledger accounts are arithmetically
accurate.
(vi) Tallying of trail balance is not a
conclusive profit of accuracy of accounts.
Q.N.3.Describe the methods of
preparing the Trial Balance. Differentiate Between Trial Balance
by Balance Method and Trial Balance by Total Method.
Ans: METHODS
OF PREPARING TRAIL BALANCE: A trail balance
refers to a list of the ledger balances as on a particular date. It can be
prepared in the following manner:
(i)
Total Method: According to this method, debit
total and credit total of each account of ledger are recorded in the trail
balance.
(ii) Balance Method: According to this method, only balance of each account of ledger is recorded in trail balance. Some accounts may have debit balance and the other may have credit balance. All these debit and credit balances are recorded in it. This method is widely used.
Difference between Balance Method and
Total method of Preparing trial Balance:
|
Trial Balance By
Balance Method |
Trial Balance by Total Method |
|
1) It can be prepared after all the Ledger accounts have been
balanced. |
1) It can be prepared immediately after the completion of
posting from books of original entry to the Ledger. |
|
2) It shows the balances of all the accounts in the Ledger. |
2) It shows the total amounts of the debit and credit sides in
each Ledger Accounts. |
|
3) It considers only those accounts which show a balance. If an
account shows no balance it will not be considered. |
3) It considers all accounts of the Ledger. |
Q.N.4.
What is the Classification of Errors?
Ans: All the
errors can be classified into the following four categories:
- Errors of Commission
- Errors of Omission
- Errors of Principle
- Compensating Errors
Q.N.5. What are the errors
(a)
Disclosed by trial balance
(b)
Not disclosed by trial balance?
Ans: Trial balance disclosed some of the errors and does not
disclosed some other errors. This is given below:
(a)
Errors disclosed by trial balance:
i) Wrong
totaling of subsidiary books
ii)
Posting of an amount on the wrong side
iii)
Omission to post an amount into ledger
iv) Double
posting or omission of posting
v) Posting
wrong amount
vi) Error
in balancing
(b) Errors not disclosed
by trial balance:
i) Error
of principle
ii) Error
of omission
iii)
Errors of Commission
iv)
Recording wrong amount in the books of original entry
v)
Compensating errors.
Q.N.6.
Describe briefly:
(a) Errors of
Commission (b) Errors of Omission (c)
Error of principle (d) Compensating Errors
Ans: Errors of Commission: These are
the errors which are committed due to the wrong posting of wrong transaction,
wrong totaling or balancing of the accounts, wrong casting of the subsidiary
books. Such errors are called Errors of Commission.
Errors of Omission: The errors of omission may be committed at
the time of recording the transaction in the books of original entry or while
posting to the ledger. These can be of two types:
i)
errors of complete omission
ii)
errors of partial commission
When a transaction is completely omitted from
recording in the books of original record, it is an error of complete omission.
When a transaction is partially omitted from
posting in ledger, it is an error of partial omission.
Error of principle:
Accounting entries are recorded as per the generally accepted accounting
principles. If any of these principles are violated or ignored, errors
resulting from such violation are known as errors of principle. An error of
principle may occur due to incorrect classification of expenditure or receipt
between capital and revenue.
Compensating errors: When two or more errors are committed in such
a way that the effect of these errors on the debits and credits of accounts is
nil, such errors are called compensating errors. Such errors do not affect the
tally of the trial balance.
Q.N.7.
From the point of view of rectification, the errors can be classified into how
many categories? How do we rectify them?
Ans: The errors may be classified into
the following categories:
i) Errors which do not affect the trial
balance (usually takes place in two accounts).
ii) Errors which affect the trial balance
(usually affects one account and a journal entry is not possible).
Errors which are committed in one account,
also known as one sided error, can be rectified by Opening a suspense account.
Q.N.8.
What is Suspense Account?
Ans: If the trial balance does not tally due
to the existence of one sided errors accountant has to carry forward his
accounting process prepare financial statements. The accountant tallies his
trial balance by putting the difference on the shorter side as "suspense
account”.
Q.N.9.
What are the limitations of trial balance?
Ans: The following are the important
limitations of trial balances:
(i) The trail balance can be prepared only in
those concerns where double entry system of book- keeping is adopted. This
system is too costly.
(ii) A trail balance is not a conclusive proof
of the arithmetical accuracy of the books of account. It the trail balance
agrees, it does not mean that now there are absolutely no errors in books. On
the other hand, some errors are not disclosed by the trail balance.
(iii) It the trail balance is wrong, the
subsequent preparation of Trading, P&L Account and Balance Sheet will not
reflect the true picture of the concern.
Q.N.10. Explain the rules of preparing the trial balance. Create a list of the items that are included
under Debit and Credit side of Trial balance.
Ans: While preparing the trial balance from the given list of
ledger balances, following rules should be taken into care:
(i)
The balances of all assets account, expenses
and losses account, drawings, cash and bank balances are placed in the debit
column of the trial balance.
(ii)
The balances of all liabilities account,
incomes and gains account and Capital balances are placed in the credit column
of the trial balance.
|
Debit Account Items. |
Amount |
Credit Account Items. |
Amount |
|
Land and
Building Plant
and Machinery Equipment
Furniture
and Fixtures Cash in
Hand Cash at
Bank Debtors Bills
Receivable Stock of
Raw Materials Work in
Progress Stock of
Finished Goods Prepaid
Insurance Purchases
Carriage
Inwards Carriage
Outwards Sales
Return Interest
Paid Salaries
Outstanding
Interest Earned Drawings
|
|
Capital Sales Purchase Return Commission / Discount Received Long Term Loan Bills Payable Creditors Outstanding Salaries Advances from Customers Reserve Fund Provision
For Doubtful Debts |
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