Trial Balance and Rectification of Errors

Trial Balance and Rectification of Errors:
Trial Balance and Rectification of Errors are not independent of each other. The
trial balance is prepared:
1. After the preparation of the ledger books and

2. Before the preparation the trading profit and loss account of the firm.
The need for rectifying accounting errors arises after the preparation of the trial
balance. The trial balance is crucial for the identification of such errors before
proceeding with its rectification. In this article, read all about trial balance and
rectification of errors.
Introducing Trial Balance

The trial balance, as mentioned above, is prepared after preparing the journal
and ledger books. It is a simple double entry accounting statement that typically
attempts to balance out every account that has been opened in the ledger and
compile it into two categories.
The trial balance has two columns – the debit as well as the credit
columnswhich are meant to tally after all the entries. A tallied trial balance
grants the accountant the permission to go ahead with the trading profit and
loss account with all the accurate and effective data thus available.
What is the purpose of preparing a trial balance?

Before moving onto the preparation of the trading profit and loss account of a
firm, it is of paramount importance to check the precision and correctness of
the ledger accounts so prepared. If a trading profit and loss account were
prepared with errors originating from the ledger accounts, there could be
consequential errors that do not cause the firm’s financial balance sheet to tally
at the end of the accounting year. This can, in turn, lead to the wastage of
financial resources, wastage of valuable time and hinder the process of
financial decision making.
The trial balance avoids such accounting mishaps by helping in identifying the
existence of accounting errors in the ledgers before proceeding to the trading
profit and loss account.
How does the trial balance indicate an error?
In case of an accounting error in the ledger, the debit and credit columns in the
trial balance will not tally. In other words, when the trial balance does not tally,
it indicates that an error exists in one of the ledgers.
What is the basic trial balance format?

There are two ways of preparing a trial balance. Each method is different than
the other in many aspects.
1. The Balance Method – is prepared only after balancing out all the
accounts of the ledgers. This method is more commonly used due to its
simplicity in understanding and a higher level of accuracy.
2. Total Amount Method – considers the total debit amount as well as the
total credit amount in every ledger account. It does not necessarily have to be
prepared after balancing the ledgers.
The basic format for the balance method of trial balance is demonstrated as
follows:
Sl Ledger
Account Name Debit Balance Credit balance
No. Folio
1 Purchases account 1 xxx –

Sales account 2 – xxx
2
Capital account 3 – xxx
3
Drawings account 4 xxx –
4
Salary account 5 xxx –
5
Purchase return account 6 – xxx
6
Sales return account 7 xxx –
7
Bank account 8 xxx –
8
Bank loan account 9 – xxx
9
Discount allowed account 10 xxx –
10
Discount received account 11 – xxx
11
Depreciation account 12 xxx –
12
Asset account 13 xxx –
13
abcd abcd
Introducing Accounting Errors

In simple words, errors that occur while accounting is known as accounting
errors. These errors are often non-fraudulent and have no ill-intention.
Accounting errors, in other words, are also known as unintentional accounting
mistakes that are usually the outcome of stress, excessive accounting workload,
poor accounting knowledge, ignorance or even fatigue.
These accounting errors can happen either while entering information into the
journals or while preparing the ledgers. Such accounting errors are usually
detected and rectified after preparing the trial balance and are hence prevented
from affecting further financial reports.
What are the various accounting errors?

There are 2 broad ways of classifying accounting errors:
1. Errors that do not affect the tallying of the trial balance – for example the
error of complete omission, the error of principle, compensation error, and the
error of recording.
2. Errors that do affect the tallying of the trial balance – for example the error
of partial omission, the error of carrying forward, and the error of casting
Further, there are 2 broad categories of the various types of errors:
I. Errors of Principle
If any entry into the journals or ledgers is recorded without abiding by the
principles and rules of the Generally Accepted Accounting Principles (GAAP),
such errors are classified as errors of principle. In other words, ignoring or
violating the Generally Accepted Accounting Principles can lead to errors of
principle.
Errors of principle often have a considerable impact on the financial statements

and reports.
II. Clerical Errors
Clerical errors, on the other hand, refer to minor and unintentional mistakes
made by the accountants and clerks during the normal course of accounting
tasks. They may or may not have an impact on the agreement of the trial
balance. Clerical errors are of 3 kinds:
a. Error of omission
When a transaction has been omitted either partially or completely in a double

entry, it leads to an error of omission. The error of omission is further
categorized into:
 Complete omission – errors resulting from complete omission occurs

when a transaction has been completely omitted from being recorded in either
the journal entry or the ledger account.
 Partial omission – errors resulting from partial omission occurs when
only one aspect (either the debit or credit) of a transaction is posted to the
ledger account
b. Error of commission
When an error occurs due to wrongful recording, wrongful casting, wrongful

posting or wrongful carry forward, it is known as an error of commission. The
error of commission is further categorized into:
 Recording error – errors resulting from recording transactions wrongly

in the subsidiary journal books were known as recording errors.
 Casting error – errors resulting from totalling the subsidiary books
wrongly were known as casting errors.
 Posting error – errors resulting from posting journal transactions
wrongfully into the ledgers are known as posting errors
 Carrying forward error – errors that result from mistakes while carrying
forward of the total from the previous page to the next page is known as
carrying forward error.
c. Compensating errors
Compensating errors refer to the error that arises when two or more errors are
recorded in a manner in which the total impact of the recorded errors is
nullified in the trial balance.
For example: error in sales accounts by overstating Rs. 50,000 and an error in
the supplier’s account by understating Rs. 50,000. The impact of the trial
balance is neutralized
Trial Balance and Rectification of errors – the correlation

Usually, when an error is made and later detected, it is often best suggested to
overwrite the error with the righteous information. In accounting, this practice
is considered as an offensive malpractice and must not be taken to at any cost.
Rectifying accounting errors can be broadly classified into two parts:

1. Rectification of 2 sided errors – These refer to the rectification of those
errors that do not affect the agreement (tallying) of the trial balance.
For example
Credit purchase of Rs. 10,500 from LMN Ltd was recorded in the sales books.
If the error of recording was:
LMN Ltd A/C Dr 10,500 –
To Sales A/C – 10,500
The corrected entry would be:
Purchases A/C Dr 10,500 –
To LMN Ltd A/C – 10,500
The rectified entry would be:
Purchases A/C Dr 10,500 –
Sales A/C Dr 10,500 –
To LMN Ltd A/C – 21,000
2. Rectification of 1 sided errors – These refer to the rectification of those

errors that do have an impact on the agreement and tallying of the trial balance.
Such errors can be rectified either:
 After the preparation of the trial balance
1 sided errors detected after the preparation of the trial balance can be rectified
by transferring the difference in the trial balance into the Suspense A/C. The
suspense account is a temporary account that is created in order to transfer any
difference in the total balance from the trial balance into it until errors are
located and rectified.
 Before the preparation of the trial balance
1 sided errors detected before the preparation of the trial balance can be
rectified by either crediting or debiting the respective accounts with the
respective amount and accompanying it with an explanatory note in the
particulars column.
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Trial Balance and Rectification of Errors:

1. After the preparation of the ledger books and

Introducing Trial Balance

What is the purpose of preparing a trial balance?

What is the basic trial balance format?

1 Purchases account 1 xxx –

Introducing Accounting Errors

What are the various accounting errors?

Further, there are 2 broad categories of the various types of errors:

Errors of principle often have a considerable impact on the financial statements

II. Clerical Errors

When a transaction has been omitted either partially or completely in a double

 Complete omission – errors resulting from complete omission occurs

When an error occurs due to wrongful recording, wrongful casting, wrongful

 Recording error – errors resulting from recording transactions wrongly

Trial Balance and Rectification of errors – the correlation

Rectifying accounting errors can be broadly classified into two parts:

If the error of recording was:

LMN Ltd A/C Dr 10,500 –

To Sales A/C – 10,500

The corrected entry would be:

Purchases A/C Dr 10,500 –

To LMN Ltd A/C – 10,500

The rectified entry would be:

Purchases A/C Dr 10,500 –

Sales A/C Dr 10,500 –

To LMN Ltd A/C – 21,000

2. Rectification of 1 sided errors – These refer to the rectification of those

 After the preparation of the trial balance

 Before the preparation of the trial balance

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