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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