Trial Balance and Rectification of Errors
A Trial Balance is a list of balances of all ledger accounts. It is only a statement and not an account. Trial Balance consists of a debit column with all debit balances of accounts and credit column with all credit balances of accounts. It verifies the arithmetical accuracy of books of accounts but not the accounting accuracy. Under Balance Method Trial Balance is prepared by showing the balances of all ledger accounts and then totaling up the debit and credit columns of the trial balance to assure their correctness. Trial balance is prepared to locate errors, prepare financial statements etc. Steps to prepare Trial Balance include ascertain the account wise and balance of all the ledger accounts,. Error of omission is an error when a transaction is completely or partially omitted from being recorded in the books of accounts. Error of commission are errors, which are committed due to wrong posting of transaction, wrong totaling or balancing of the accounts or wrong casting of the subsidiary books or wrong recording of amount in the books of original entry, etc. These errors may or may affect Trial balance. Error of principle occurs when a transaction is recorded in contravention of the accounting principle. When two mistakes nullify the effect of each other and in spite of the errors in both the accounts, the trial balance still agrees. It is called compensating error.
One sided errors are those errors due to which trial balance does not agree. Errors not affecting the trial balance are two sided errors. Two sided errors are rectified by cancelling the effect of wrong debit or credit and restoring the effect of correct debit or credit. Account showing an excess debit should be credited in the rectifying entry, account showing a short debit should be debited in the rectifying entry etc. Rectification of single sided errors can be done at two stages, first when errors are located and rectified before preparing the Trial Balance and when errors are located and rectified after preparing the Trial Balance. When rectification of errors is done after preparation of trial balance, in this case, one sided errors are rectified by opening a new account called ‘Suspense Account.’ A suspense account is the account to which the amount being the difference in trial balance is placed.