Page 39 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes Trial Balance Errors

There can be certain errors in recording the accounting transactions in primary and secondary
books of accounts. When there are some errors in the accounting then the balance of both the
sides of trail balance will not tally. Some of the errors are easy to detect but there are certain
errors which are not detected through the trial balance. In other words, a trial balance would
agree in spite of these errors. These errors are very difficult to detect because you will not be
aware of such errors. The examples of such errors are errors of principle, errors of omission,
errors of commission, compensating errors, etc.
Types of errors

There are two types of errors:
Errors which cannot be located by trial balance

The following errors cannot be detected by the trial balance means inspite of agreeing the totals
of debit side and credit side, these errors occur in the accounts.
1. Error of Omission: These errors occur when any business transaction is completely or
partially omitted from the recording in the books of original records. As goods, sold of
10,000 to Mr. Ram, is not entered anywhere in the original books so its effect will not
appear on the ledger and trial balance. Thus, such type of errors can not be located by trial
balance.

2. Error of Commission: Such type of errors are found when one account is debited or credited
in the place of another account. As cash received from Shyam 1,000 has been credited in
the name of Ram. Such type of errors do not affect the agreement of the totals of the debit
and credit side of the trial balance but they affect the result of the business.
3. Error of Principle: These errors occur when there is wrong classification between the
capital and revenue nature incomes or expenditures. As the purchases of furniture of
20,000, are entered in the book of purchases while it should be in furniture account. Such
errors can not be located by trial balance.
4. Compensating Error: When two errors of the same account occur and the effect of one
error is compensated by the effect of other error it is called compensating error. For
example, if purchase of 10,000 from Ajay is credited only by 1,000 while the purchases
from Vijay for 1,000 is credited by 10,000. Thus, such type of errors do not affect on the
agreement of the Trial Balance.

Errors which can be located by trial balance

The errors which affects the agreement of the totals of the Trial balance, can be located easily.
These errors may be relating to:
1. Totals of the subsidiary books or ledger accounts.
2. Balancing of an account of the ledger.
3. Wrong posting of any amount in any account.

4. Posting of any account may be in the wrong side of the account.
5. Balance of any account may be omitted in writing in the Trial Balance.
6. Wrong total of the Trial Balance.

34 LOVELY PROFESSIONAL UNIVERSITY