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Class 11 Accountancy Exam Questions Trial Balance and Rectification of Errors
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Meaning – Trial balance is a statement prepared with the balances or totals of debits and credits of all accounts in the ledger to test the arithmetical accuracy of ledger account. It may be prepared annually, half yearly, quarterly or even monthly. It provides a basis for the preparation of final accounts in a reliable manner.
Objectives of trial balance
1. To verify the arithmetical accuracy of ledger accounts – If the total of debit and
credit balances are found equal, we can assume that posting have been made on the correct side of account and balances taken correctly.
2. To locate errors – If the trial balance total does not agree, it means that there exist some errors due to posting of wrong amount, wrong totaling, posting on wrong side,omission to post an amount etc. As soon as it is identified, it can be rectified.
3. To help in preparation of final accounts – Final accounts or financial statements
consists of Trading and Profit and Loss account and the balance sheet. The financial statements are prepared with the balances of ledger accounts, therefore, an accountant should make it sure that all the accounts are correctly prepared. An agreed trial balance thus, becomes an essential tool for preparing final accounts.
Format of a Trial Balance
Methods of preparing trial balance
1. Totals method – In this method, the debit side total and credit side total of all accounts are entered in the respective column of trial balance. Finally, these columns are totaled.
2. Balances method – Under this method the balances of ledger accounts are shown in the respective column of the trial balance.
3. Totals – cum – balances method – This is a combination of the above two methods in which 4 amount columns are prepared. 2 columns for writing the debit and credit totals of all accounts and the other 2 columns for entering its balances.
Accounting Errors – These are the mistakes and omissions made unknowingly while recording transactions in the books of accounts. On the basis of nature, errors can be classified into Errors of clerical nature and Errors of Principle.
Errors of clerical nature may be further classified into errors of commission, errors of omission and compensating errors.
1. Errors of commission – Errors committed when transactions are incorrectly recorded are called errors of commission. These errors are caused by the following reasons:
a. Wrong posting – Example: Rs.500 posted as Rs.50, cash paid to Rajan posted to the account of Rajani, cash received from Mr. John posted to the debit of John’s account.
b. Wrong totaling and wrong carry forward.
c. Wrong balancing of accounts.
d. Errors in taking out balances of ledger accounts.
e. Posting the same amount twice to an account.
2. Errors of omission – When a transaction is omitted to be entered in the book of original entry or not posted from the books of original entry to the ledger, it is an error of omission. It may be either complete omission or partial omission, for example, credit sales is omitted to be entered in the sales book is a case of complete omission, cash paid to Krishnan is entered on the payment side of the cash book but omitted to be posted to Krishnan’s account it is a case of partial omission. Complete omission will have no effect on the Trial Balance, but trial balance will show disagreement if the omission is partial.
3. Compensating errors – Compensating errors are those errors which compensate each other. For example, if the purchases book is under cast by Rs.200 and the sales book is also under cast by the same amount. Such errors will not affect the agreement of trial balance.
Errors of Principle – These errors occur when the accounting principles are violated in recording transactions. For example, purchase of office furniture was debited to purchases account instead of the same in furniture account (Going Concern Concept is violated here).
In this case, there is no effect on the trial balance since the amounts are placed on the correct side though in a wrong account.
Rectification of errors – Disagreement of trial balance is a clear indication that there are errors in accounting procedure. When errors are located they have to be rectified. From the point of view of rectification, errors are classified into two categories:
1. Errors which do not affect the agreement of trial balance (two – sided errors) – Errors of principle, errors of complete omission and compensating errors come under this group. These are rectified by passing entries in the journal proper
a. Complete omission of a transaction in the books of original entry.
b. Entering a wrong amount in the subsidiary books – e.g. a credit purchase of goods worth Rs.760 from Mr. Rajan has wrongly been recorded in the purchase book as Rs.670, the debit side of purchase account and credit side of Mr. Rajan is reduced by Rs.90. As both sides of the trial balance have been reduced by an equal amount, the trial balance will agree.
c. Posting of an amount in the wrong account – e.g. Purchase of machinery for Rs.10000 is wrongly debited to purchase account instead of machinery account. The trial balance will remain unaffected by this mistake.
d. Compensating errors
e. Errors of principle.
1. Purchase of Rs.200 from Roopesh is omitted to record in day book. It is a case of complete omission and can be rectified by giving the following entry:
Purchase A/c Dr 200
To Roopesh A/c 200
(Purchase omitted to record in the day book)
2. Purchase of furniture for Rs.2000 from Cochin furniture is recorded in the purchase day book. This is a case of Error of Principle. Rectification entry:
Furniture A/c Dr 2000
To Purchase A/c 2000
(Effect of this entry – Furniture increased and Purchase decreased)
3. Carriage paid on purchase of machinery Rs.1000 debited in carriage account. It is an error of principle. The amount was to be debited in machinery account instead of carriage account
Machinery A/c Dr 1000
To Carriage A/c 1000
(Effect of this entry – Machinery increased and carriage decreased)
Qn.1. Rectify the following errors by giving correcting entries:
1. Credit purchase of goods for Rs.850 from Chand and Sons has not been recorded in the day book.
2. Rent paid to landlord is debited in landlord’s account Rs. 600.
3. Purchase of machinery from P ltd. For Rs.28000 is recorded in Purchase Book.
4. Carriage paid on the purchase of furniture Rs.300 debited in carriage account.
5. Private expense of Rs.200 debited in Trade expense account.
6. Goods sold to Renjith for Rs.500 has been wrongly recorded in Purchase book.
7. Purchase of furniture for the personal use of proprietor of Rs.920 has been debited in furniture account.
8. Rs.180 received from Shalini has been credited in the account of Sajini.
2. Errors which will affect the agreement of trial balance (one – sided errors) – It may happen mainly due to errors of partial omission and errors of commission. These are due to the following:
a. Omission to post an amount into ledger – In case furniture is purchased for Rs.2500 and properly shown in the credit side of cash book, but not debited to furniture account,the debit side of trial balance fall short by Rs.2500.
b. Omission to post an amount in the trial balance from the ledger.
c. Posting an amount in the wrong side of an account – Rs.450 paid for advertisements, is shown on the debit side of cash book, instead of showing on the credit side, will result in a difference of Rs.900 in cash balance.
d. Posting of a wrong amount – when a wrong amount is posted in the ledger account, the trial balance will not tally. E.g. Goods worth Rs.275 sold to Mr.Poulose is debited to his account with Rs.257 lead to a difference of Rs. 18 in the trial balance.
e. Wrong totaling or balancing of account.
f. Wrong totaling of subsidiary book.
g. Posting the same amount twice to an account.
h. Entering the balance of an account wrongly in the Trial Balance.
i. Error in totaling of the Trial Balance.
These errors can be rectified by giving an explanatory note or by passing a journal entry with the help of Suspense Account depending on the stage at which the errors are rectified.
Stages of Rectification of Errors –
1. Rectification before preparation of Trial Balance.
2. Rectification after the preparation of Trial balance, but before the preparation of final account.
3. Rectification after the preparation of final account. (Not included in the syllabus)
I. Rectification before preparation of Trial Balance – An error in the books of original entry, if discovered before posting it to the ledger account, can be corrected by crossing out the wrong amount by a single line and writing the correct amount above the crossed figure.
An error in the amount posted to the correct ledger account can also be corrected in a similar way.
Such one-sided errors can be corrected also by making an additional posting for the difference in amount and giving an explanatory note in particulars column. As a matter of practice errors are never erased or over-written.
1. Sales day book is under cast (totaled less) by Rs.200
The mistake is occurred in Sales Account. To rectify the mistake Sales A/c may be credited with Rs.200.
2. Sales day book is over cast (totaled more) by Rs.500
It affects the sales account. To decrease the sales account balance, it must be debited.
Rectify the following mistakes:
1. Purchase day book under cast (totaled less) by Rs.180
2. Sales day book over cast by Rs.100
3. Purchase returns book is totaled more by Rs.80
4. Sales returns book is less by Rs.110
5. Rent paid Rs.600 is omitted to post to rent account
6. Commission received Rs.40 not posted to commission account.
7. Salary paid Rs.350 is posted twice to Salary account.
8. Interest received in cash is posted to the debit of interest account Rs.90
9. Payment of Rs.200 to Hameed is posted to the credit of Hameed’s account.
10.Discount column in the debit side of Cash Book is totaled less by Rs.30
II. Rectification after the preparation of Trial Balance – The agreement of Trial Balance is affecte d by one sided errors. If a Trial Balance is prepared before rectification of one sided errors, it will not agree. Therefore, the difference in the Trial Balance is normally placed in an account called Suspense Account.
Suspense Account – When all attempts fail to locate errors and the preparation of final accounts cannot be further delayed, the difference in the trial balance is temporarily transferred to an account called ‘Suspense Account”. If the debits are short, the difference is debited to suspense account and if the credits are short, the difference is credited to suspense account.
Later on locating the errors, rectifying entries would be passed. If all errors have been completely rectified the suspense a/c would close automatically. But if some balance still remaining in the suspense a/c, due to non location of errors, it will be shown in the balance sheet. If the suspense a/c shows a debit balance, it is put on the asset side and vice versa.
Errors not affecting trial balance are not corrected by the suspense a/c, but by directly debiting or crediting the affected accounts.
Qn.3. Give rectifying entries for the following on the assumption that the Trial Balance is prepared.
1. Purchase day book is under cast by Rs.300
2. Sales day book over cast by Rs.310
3. Sales day book under cast by Rs.40
4. Purchase day book over cast by Rs.240
5. Payment of Rs.80 to Deepak is posted to the debit of Deepak as 18.
6. Goods for Rs.100 purchased on credit from Girish is wrongly credited in Sales account.
Qn.4 – Debit balance amount column of Kumar’s Trial Balance is more than its credit balance by Rs.370. The following errors were later discovered.
1. Purchase Day book is found under cast by Rs.170
2. Sales day book is over cast by Rs.300
3. Purchase Returns book is added less by Rs.60
4. Sales returns day book is added less by Rs.40
5. Purchase from Deepu Rs.400 posted to the debit side of his account.
6. Rent paid Rs.240 has been posted twice to rent account.
7. Cash paid to Sojan Rs.110 has been posted to the credit of Sojan’s account.
You are required to give the rectifying journal entries and show the suspense account.
Qn.5 – Mr. Varma failed to balance his Trial Balance, the credit side being more by Rs.420.
The difference is placed in a suspense account. Later on the following are discovered.
Give rectifying journal entries and also prepare the suspense account.
1. Sales account was undercast by Rs.100
2. Goods for Rs.300 purchased on credit from Raj was wrongly entered in the sales book.
The account of Raj was correctly credited.
3. Sales returns book was under cast by Rs.30
4. A credit item of Rs.10 was wrongly debited to Renny’s account as Rs.100
Rectification of Errors in the Next Accounting Year
If some errors committed during an accounting year are not located and rectified before the finalisation of financial statements, suspense account cannot be closed and its balance will be carried forward to the next accounting period. When the errors committed in one accounting year are located and rectified in the next accounting year, profit and loss adjustment account is debited or credited in place of accounts of expenses/losses and incomes / gains in order to avoid impact on the income statement of next accounting period.
Qn.2 (Before the preparation of Trial Balance)
1. To increase the purchase account it should be further debited by Rs.180 as Mistake in posting (under cast) Rs.180
2. To decrease sales account, it should be debited as Mistake in posting (over cast) Rs.100
3. To decrease Purchase Return account, it should be debited as Mistake in posting
(totaled more) Rs.80
4. To increase Sales return account, it should be debited as Mistake in totaling (under cast) Rs.110
5. To increase Rent account, it should be debited as Omission in Posting Rs.600
6. To increase Commission received account, it should be credited as Omission in
7. To decrease Salary account, it should be now credited as Mistake in posting (twice) Rs.350
8. To increase Interest Received account two times, it should be now credited with double amount as Mistake in posting Rs.180
9. To decrease Hameed’s account two times, it should be debited with double amount as Mistake in posting Rs.400
10.To increase Discount allowed column of the cash book, it should be debited as Mistake in totaling Rs.30