Trial Balance and Rectification of Errors Class 11 Notes

A trial balance is a statement of the debit and credit balances of all ledger accounts at a given date, prepared to test the arithmetical accuracy of the postings and the completeness of the double entry. The fact that it agrees is evidence of correctness, not proof of it, and the distinction is the most important idea in the chapter.

• To check the arithmetical accuracy of the postings, the totalling and the balancing of the accounts.
• To check that every transaction has been posted twice, on the correct side of the correct account.
• To check that a complete double entry has taken place, so that the total debits equal the total credits.
• To provide a useful summary of the balances for the preparation of the trading and profit and loss account and the balance sheet.
• To supply the opening figures for the suspense account when an error is located later, and for the final accounts.
• Not to detect an error of original entry, an error of principle, an error of commission or a compensating error.

Errors are grouped by where they happen. The classification matters because it determines whether the trial balance will reveal the error, and therefore whether a suspense account is needed at all.

• Error of original entry: the figure recorded is wrong at the very first step, for example a purchase invoice of Rs. 40,000 is entered as Rs. 4,000. Both sides of the entry are wrong in the same proportion, so the trial balance still agrees.
• Error of principle: an amount is posted to the wrong type of account, for example a payment for machinery is debited to the machinery purchase account instead of the machinery account, or an expense is debited to a liability. The total is unaffected, so the trial balance agrees.
• Error of commission: an amount is posted to the right type of account but the wrong person, for example a payment to Ram is debited to Shyam's account. The trial balance agrees.
• Error of omission: a transaction is entirely left out, or only one aspect of it is recorded. The trial balance does agree, but only in the case where both aspects were omitted together.
• Compensating error: two or more errors cancel each other, one overstating and another understating by the same amount, so the totals still agree.

The rationalised syllabus restricts trial balance preparation to the balance method only. Every ledger account is first balanced as it was in Chapter 4, the balance carried down is noted, and the figure is then entered in the trial balance on the side on which it stands. No account is taken to the trial balance before it has been ruled off and balanced.

• Balance each ledger account and enter the balance c/d, then the balance b/d on the next page.
• Copy each balance into the trial balance, on the debit side for assets, expenses, drawings and debtors, and on the credit side for liabilities, capital, incomes and creditors.
• Prefix a debit balance with a plus sign and a credit balance with a minus sign, as the printed format requires.
• Total the two columns. The trial balance is drawn up only when the totals agree, or when the difference is shown as a suspense balance on the deficient side.
• The order of accounts in the trial balance is conventional, not alphabetical: assets, liabilities, capital, revenue and expenses, though CBSE normally supplies the order to be followed.

Divide the errors into those that leave the trial balance in agreement and those that do not. This single split decides whether the question needs a suspense account.

• Trial balance not affected: error of original entry, error of principle, error of commission, compensating error, and an error of omission in which both aspects were omitted together.
• Trial balance affected: an error in the casting of a column of figures, an error in the total of the debit or credit column, an error in the balancing of an account, a posting to the wrong side of an account, an error of principle posted to the wrong account, and an error of omission in which only one aspect was omitted.
• In every case where the trial balance is affected, the difference between the two column totals is the amount of the error.
• Suspense account: an account opened for the difference between the debit and credit totals, used as a temporary placeholder until the error is located and rectified. Its balance appears in the trial balance on the side that is short.

Because the totals agree, there is no suspense account in these cases. The error is located by reasoning, the position of the trial balance totals is not altered, and the rectification is made using the one-sided method, a single journal entry with the correct account debited or credited and the other aspect shown as being written off. No suspense account is involved.

• Error of principle, for example an amount paid for a machine debited to Purchases: debit Machinery, credit Purchases.
• Error of commission, for example a payment to Ram shown in Shyam's account: debit Shyam, credit Ram.
• Error of original entry, for example a purchase of Rs. 40,000 recorded as Rs. 4,000: debit the account for Rs. 36,000, credit the counter account for Rs. 36,000, and the difference is simply omitted since it was never recorded at all.
• Compensating error: rectify each error separately, and the trial balance continues to agree because the two cancel.

When the totals do not agree, the difference is parked in the suspense account and the error is found later, often after the trial balance has been drawn up. Each rectification entry then involves three accounts: the correct account, the wrong account, and the suspense account, which is credited or debited according to which side it stands on.

• Error in the casting of a debit column: debit Suspense, credit the account concerned.
• Error in the casting of a credit column: credit Suspense, debit the account concerned.
• A total of an account wrongly posted to the opposite side: debit Suspense, credit that account.
• Wrong total on the debit side: credit Suspense, debit the account, so the debit total is reduced.
• Wrong total on the credit side: debit Suspense, credit the account, so the credit total is reduced.
• An error of principle posted to the wrong account: debit the correct account, credit the wrong account, and transfer the difference through the suspense account.
• Suspense account is never transferred to the trading and profit and loss account or the balance sheet, and its balance is never carried forward once every error has been located.