NCERT Textbook - Trial Balance and Rectification of Errors | Accountancy Class 11 - Commerce PDF Download

 Page 1


Accountancy 180
I
n the earlier chapters, you have learnt about the
basic principles of accounting that for every debit
there will be an equal credit. It implies that if the
sum of all debits equals the sum of all credits, it is
presumed that the posting to the ledger in terms
of debit and credit amounts is accurate. The trial
balance is a tool for verifying the correctness of
debit and credit amounts. It is an arithmetical
check under the double entry system which verifies
that both aspects of every transaction have been
recorded accurately.  This chapter explains the
meaning and process of preparation of trial balance
and the types of errors and their rectification.
6.1 Meaning of Trial Balance
A trial balance is a statement showing the
balances, or total of debits and credits, of all the
accounts in the ledger with a view to verify the
arithmatical accuracy of posting into the ledger
accounts. Trial balance is an important statement
in the accounting process as it shows the final
position of all accounts and helps in preparing the
final statements. The task of preparing the
statements is simplified because the accountant
can take the balances of all accounts from the trial
balance instead of going through the whole ledger.
It may be noted that the trial balance is usually
prepared with the balances of accounts.
Trial Balance and Rectification of Errors 6
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• state the meaning of
trial balance;
• enumerate the objectives
of preparing trial
balance ;
• prepare trial balance;
• explain the types of
errors;
• state various process
of locating errors ;
• identify the errors which
affect the agreement of
trial balance and those
which do not affect the
agreement of trial
balance;
• rectify the errors
without preparing
suspense account;
and
• rectify the errors with
suspense account.
2024-25
Page 2


Accountancy 180
I
n the earlier chapters, you have learnt about the
basic principles of accounting that for every debit
there will be an equal credit. It implies that if the
sum of all debits equals the sum of all credits, it is
presumed that the posting to the ledger in terms
of debit and credit amounts is accurate. The trial
balance is a tool for verifying the correctness of
debit and credit amounts. It is an arithmetical
check under the double entry system which verifies
that both aspects of every transaction have been
recorded accurately.  This chapter explains the
meaning and process of preparation of trial balance
and the types of errors and their rectification.
6.1 Meaning of Trial Balance
A trial balance is a statement showing the
balances, or total of debits and credits, of all the
accounts in the ledger with a view to verify the
arithmatical accuracy of posting into the ledger
accounts. Trial balance is an important statement
in the accounting process as it shows the final
position of all accounts and helps in preparing the
final statements. The task of preparing the
statements is simplified because the accountant
can take the balances of all accounts from the trial
balance instead of going through the whole ledger.
It may be noted that the trial balance is usually
prepared with the balances of accounts.
Trial Balance and Rectification of Errors 6
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• state the meaning of
trial balance;
• enumerate the objectives
of preparing trial
balance ;
• prepare trial balance;
• explain the types of
errors;
• state various process
of locating errors ;
• identify the errors which
affect the agreement of
trial balance and those
which do not affect the
agreement of trial
balance;
• rectify the errors
without preparing
suspense account;
and
• rectify the errors with
suspense account.
2024-25
181 Trial Balance and Rectification of Errors
Trial Balance of ......as on March 31, 2014
Account Title L.F. Debit Credit
Balance Balance
` `
Total
Fig. 6.1: Showing format of a trial balance
It is normally prepared at the end of an accounting year. However, an
organisation may prepare a trial balance at the end of any chosen period,
which may be monthly, quarterly, half yearly or annually depending upon its
requirements.
In order to prepare a trial balance following steps are taken:
• Ascertain the balances of each account in the ledger.
• List each account and place its balance in the debit or credit column, as
the case may be. (If an account has a zero balance, it may be included in
the trial balance with zero in the column for its normal balance).
• Compute the total of debit balances column.
• Compute the total of the credit balances column.
• Verify that the sum of the debit balances equal the sum of credit balances.
If they do not tally, it indicate that there are some errors. So one must check
the correctness of the balances of all accounts. It may be noted that all
assets expenses and receivables account shall have debit balances whereas
all liabilities, revenues and payables accounts shall have credit balances
(refer figure 6.2).
6.2 Objectives of Preparing the Trial Balance
The trial balance is prepared to fulfill the following objectives :
1. To ascertain the arithmetical accuracy of the ledger accounts.
2. To help in locating errors.
3. To help in the preparation of the financial statements. (Profit & Loss account
and Balance Sheet).
2024-25
Page 3


Accountancy 180
I
n the earlier chapters, you have learnt about the
basic principles of accounting that for every debit
there will be an equal credit. It implies that if the
sum of all debits equals the sum of all credits, it is
presumed that the posting to the ledger in terms
of debit and credit amounts is accurate. The trial
balance is a tool for verifying the correctness of
debit and credit amounts. It is an arithmetical
check under the double entry system which verifies
that both aspects of every transaction have been
recorded accurately.  This chapter explains the
meaning and process of preparation of trial balance
and the types of errors and their rectification.
6.1 Meaning of Trial Balance
A trial balance is a statement showing the
balances, or total of debits and credits, of all the
accounts in the ledger with a view to verify the
arithmatical accuracy of posting into the ledger
accounts. Trial balance is an important statement
in the accounting process as it shows the final
position of all accounts and helps in preparing the
final statements. The task of preparing the
statements is simplified because the accountant
can take the balances of all accounts from the trial
balance instead of going through the whole ledger.
It may be noted that the trial balance is usually
prepared with the balances of accounts.
Trial Balance and Rectification of Errors 6
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• state the meaning of
trial balance;
• enumerate the objectives
of preparing trial
balance ;
• prepare trial balance;
• explain the types of
errors;
• state various process
of locating errors ;
• identify the errors which
affect the agreement of
trial balance and those
which do not affect the
agreement of trial
balance;
• rectify the errors
without preparing
suspense account;
and
• rectify the errors with
suspense account.
2024-25
181 Trial Balance and Rectification of Errors
Trial Balance of ......as on March 31, 2014
Account Title L.F. Debit Credit
Balance Balance
` `
Total
Fig. 6.1: Showing format of a trial balance
It is normally prepared at the end of an accounting year. However, an
organisation may prepare a trial balance at the end of any chosen period,
which may be monthly, quarterly, half yearly or annually depending upon its
requirements.
In order to prepare a trial balance following steps are taken:
• Ascertain the balances of each account in the ledger.
• List each account and place its balance in the debit or credit column, as
the case may be. (If an account has a zero balance, it may be included in
the trial balance with zero in the column for its normal balance).
• Compute the total of debit balances column.
• Compute the total of the credit balances column.
• Verify that the sum of the debit balances equal the sum of credit balances.
If they do not tally, it indicate that there are some errors. So one must check
the correctness of the balances of all accounts. It may be noted that all
assets expenses and receivables account shall have debit balances whereas
all liabilities, revenues and payables accounts shall have credit balances
(refer figure 6.2).
6.2 Objectives of Preparing the Trial Balance
The trial balance is prepared to fulfill the following objectives :
1. To ascertain the arithmetical accuracy of the ledger accounts.
2. To help in locating errors.
3. To help in the preparation of the financial statements. (Profit & Loss account
and Balance Sheet).
2024-25
Accountancy 182
Account Title L.F. Debit Credit
Balance Balance
` `
• Capital ü
• Land and Buildings ü
• Plant and Machinery ü
• Equipment ü
• Furniture and Fixtures ü
• Cash in Hand ü
• Cash at Bank ü
• Debtors ü
• Bills Receivable ü
• Stock of Raw Materials ü
• Stock of Finished Goods ü
• Purchases ü
• Carriage Inwards ü
• Carriage Outwards ü
• Sales ü
• Sales Return ü
• Purchases Return ü
• Interest Paid ü
• Commission/Discount Received ü
• Salaries ü
• Long Term Loan ü
• Bills Payable ü
• Creditors ü
• Advances from Customers ü
• Drawings ü
Total xxx   xxx
Fig. 6.2 : Illustrative trial balance
6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts
As stated earlier, the purpose of preparing a trial balance is to asceitain whether
all debits and credit are properly recorded in the ledger or not and that all
accounts have been correctly balanced. As a summary of the ledger, it is a list
of the accounts and their balances. When the totals of all the debit balances
2024-25
Page 4


Accountancy 180
I
n the earlier chapters, you have learnt about the
basic principles of accounting that for every debit
there will be an equal credit. It implies that if the
sum of all debits equals the sum of all credits, it is
presumed that the posting to the ledger in terms
of debit and credit amounts is accurate. The trial
balance is a tool for verifying the correctness of
debit and credit amounts. It is an arithmetical
check under the double entry system which verifies
that both aspects of every transaction have been
recorded accurately.  This chapter explains the
meaning and process of preparation of trial balance
and the types of errors and their rectification.
6.1 Meaning of Trial Balance
A trial balance is a statement showing the
balances, or total of debits and credits, of all the
accounts in the ledger with a view to verify the
arithmatical accuracy of posting into the ledger
accounts. Trial balance is an important statement
in the accounting process as it shows the final
position of all accounts and helps in preparing the
final statements. The task of preparing the
statements is simplified because the accountant
can take the balances of all accounts from the trial
balance instead of going through the whole ledger.
It may be noted that the trial balance is usually
prepared with the balances of accounts.
Trial Balance and Rectification of Errors 6
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• state the meaning of
trial balance;
• enumerate the objectives
of preparing trial
balance ;
• prepare trial balance;
• explain the types of
errors;
• state various process
of locating errors ;
• identify the errors which
affect the agreement of
trial balance and those
which do not affect the
agreement of trial
balance;
• rectify the errors
without preparing
suspense account;
and
• rectify the errors with
suspense account.
2024-25
181 Trial Balance and Rectification of Errors
Trial Balance of ......as on March 31, 2014
Account Title L.F. Debit Credit
Balance Balance
` `
Total
Fig. 6.1: Showing format of a trial balance
It is normally prepared at the end of an accounting year. However, an
organisation may prepare a trial balance at the end of any chosen period,
which may be monthly, quarterly, half yearly or annually depending upon its
requirements.
In order to prepare a trial balance following steps are taken:
• Ascertain the balances of each account in the ledger.
• List each account and place its balance in the debit or credit column, as
the case may be. (If an account has a zero balance, it may be included in
the trial balance with zero in the column for its normal balance).
• Compute the total of debit balances column.
• Compute the total of the credit balances column.
• Verify that the sum of the debit balances equal the sum of credit balances.
If they do not tally, it indicate that there are some errors. So one must check
the correctness of the balances of all accounts. It may be noted that all
assets expenses and receivables account shall have debit balances whereas
all liabilities, revenues and payables accounts shall have credit balances
(refer figure 6.2).
6.2 Objectives of Preparing the Trial Balance
The trial balance is prepared to fulfill the following objectives :
1. To ascertain the arithmetical accuracy of the ledger accounts.
2. To help in locating errors.
3. To help in the preparation of the financial statements. (Profit & Loss account
and Balance Sheet).
2024-25
Accountancy 182
Account Title L.F. Debit Credit
Balance Balance
` `
• Capital ü
• Land and Buildings ü
• Plant and Machinery ü
• Equipment ü
• Furniture and Fixtures ü
• Cash in Hand ü
• Cash at Bank ü
• Debtors ü
• Bills Receivable ü
• Stock of Raw Materials ü
• Stock of Finished Goods ü
• Purchases ü
• Carriage Inwards ü
• Carriage Outwards ü
• Sales ü
• Sales Return ü
• Purchases Return ü
• Interest Paid ü
• Commission/Discount Received ü
• Salaries ü
• Long Term Loan ü
• Bills Payable ü
• Creditors ü
• Advances from Customers ü
• Drawings ü
Total xxx   xxx
Fig. 6.2 : Illustrative trial balance
6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts
As stated earlier, the purpose of preparing a trial balance is to asceitain whether
all debits and credit are properly recorded in the ledger or not and that all
accounts have been correctly balanced. As a summary of the ledger, it is a list
of the accounts and their balances. When the totals of all the debit balances
2024-25
183 Trial Balance and Rectification of Errors
and credit balances in the trial balance are equal, it is assumed that the posting
and balancing of accounts is arithmetically correct. However, the tallying of the
trial balance is not a conclusive proof of the accuracy of the accounts. It only
ensures that all debits and the corresponding credits have been properly recorded
in the ledger.
6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors
When a trial balance does not tally (that is, the totals of debit and credit columns
are not equal), we know that at least one error has occured. The error (or errors)
may have occured at one of those stages in the accounting process: (1) totalling
of subsidiary books, (2) posting of journal entries in the ledger, (3) calculating
account balances, (4) carrying account balances to the trial balance, and (5)
totalling the trial balance columns.
It may be noted that the accounting accuracy is not ensured even if the
totals of debit and credit balances are equal because some errors do not affect
equality of debits and credits. For example, the book-keeper may debit a correct
amount in the wrong account while making the journal entry or in posting a
journal entry to the ledger. This error would cause two accounts to have
incorrect balances but the trial balance would tally. Another error is to record
an equal debit and credit of an incorrect amount. This error would give the
two accounts incorrect balances but would not create unequal debits and
credits. As a result, the fact that the trial balance has tallied does not imply
that all entries in the books of original record (journal, cash book, etc.) have
been recorded and posted correctly. However, equal totals do suggest that
several types of errors probably have not occured.
6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements
Trial balance is considered as the connecting link between accounting records
and the preparation of financial statements. For preparing a financial
statement, one need not refer to the ledger. In fact, the availability of a tallied
trial balance is the first step in the preparation of financial statements. All
revenue and expense accounts appearing in the trial balance are transferred
to the trading and profit and loss account and all liabilities, capital  and assets
accounts are transferred to the balance sheet.
(Preparation of the financial statements is explained in chapters, 9 and 10).
2024-25
Page 5


Accountancy 180
I
n the earlier chapters, you have learnt about the
basic principles of accounting that for every debit
there will be an equal credit. It implies that if the
sum of all debits equals the sum of all credits, it is
presumed that the posting to the ledger in terms
of debit and credit amounts is accurate. The trial
balance is a tool for verifying the correctness of
debit and credit amounts. It is an arithmetical
check under the double entry system which verifies
that both aspects of every transaction have been
recorded accurately.  This chapter explains the
meaning and process of preparation of trial balance
and the types of errors and their rectification.
6.1 Meaning of Trial Balance
A trial balance is a statement showing the
balances, or total of debits and credits, of all the
accounts in the ledger with a view to verify the
arithmatical accuracy of posting into the ledger
accounts. Trial balance is an important statement
in the accounting process as it shows the final
position of all accounts and helps in preparing the
final statements. The task of preparing the
statements is simplified because the accountant
can take the balances of all accounts from the trial
balance instead of going through the whole ledger.
It may be noted that the trial balance is usually
prepared with the balances of accounts.
Trial Balance and Rectification of Errors 6
LEARNING OBJECTIVES
After studying this chapter,
you will be able to :
• state the meaning of
trial balance;
• enumerate the objectives
of preparing trial
balance ;
• prepare trial balance;
• explain the types of
errors;
• state various process
of locating errors ;
• identify the errors which
affect the agreement of
trial balance and those
which do not affect the
agreement of trial
balance;
• rectify the errors
without preparing
suspense account;
and
• rectify the errors with
suspense account.
2024-25
181 Trial Balance and Rectification of Errors
Trial Balance of ......as on March 31, 2014
Account Title L.F. Debit Credit
Balance Balance
` `
Total
Fig. 6.1: Showing format of a trial balance
It is normally prepared at the end of an accounting year. However, an
organisation may prepare a trial balance at the end of any chosen period,
which may be monthly, quarterly, half yearly or annually depending upon its
requirements.
In order to prepare a trial balance following steps are taken:
• Ascertain the balances of each account in the ledger.
• List each account and place its balance in the debit or credit column, as
the case may be. (If an account has a zero balance, it may be included in
the trial balance with zero in the column for its normal balance).
• Compute the total of debit balances column.
• Compute the total of the credit balances column.
• Verify that the sum of the debit balances equal the sum of credit balances.
If they do not tally, it indicate that there are some errors. So one must check
the correctness of the balances of all accounts. It may be noted that all
assets expenses and receivables account shall have debit balances whereas
all liabilities, revenues and payables accounts shall have credit balances
(refer figure 6.2).
6.2 Objectives of Preparing the Trial Balance
The trial balance is prepared to fulfill the following objectives :
1. To ascertain the arithmetical accuracy of the ledger accounts.
2. To help in locating errors.
3. To help in the preparation of the financial statements. (Profit & Loss account
and Balance Sheet).
2024-25
Accountancy 182
Account Title L.F. Debit Credit
Balance Balance
` `
• Capital ü
• Land and Buildings ü
• Plant and Machinery ü
• Equipment ü
• Furniture and Fixtures ü
• Cash in Hand ü
• Cash at Bank ü
• Debtors ü
• Bills Receivable ü
• Stock of Raw Materials ü
• Stock of Finished Goods ü
• Purchases ü
• Carriage Inwards ü
• Carriage Outwards ü
• Sales ü
• Sales Return ü
• Purchases Return ü
• Interest Paid ü
• Commission/Discount Received ü
• Salaries ü
• Long Term Loan ü
• Bills Payable ü
• Creditors ü
• Advances from Customers ü
• Drawings ü
Total xxx   xxx
Fig. 6.2 : Illustrative trial balance
6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts 6.2.1 To Ascertain the Arithmetical Accuracy of Ledger Accounts
As stated earlier, the purpose of preparing a trial balance is to asceitain whether
all debits and credit are properly recorded in the ledger or not and that all
accounts have been correctly balanced. As a summary of the ledger, it is a list
of the accounts and their balances. When the totals of all the debit balances
2024-25
183 Trial Balance and Rectification of Errors
and credit balances in the trial balance are equal, it is assumed that the posting
and balancing of accounts is arithmetically correct. However, the tallying of the
trial balance is not a conclusive proof of the accuracy of the accounts. It only
ensures that all debits and the corresponding credits have been properly recorded
in the ledger.
6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors 6.2.2 To Help in Locating Errors
When a trial balance does not tally (that is, the totals of debit and credit columns
are not equal), we know that at least one error has occured. The error (or errors)
may have occured at one of those stages in the accounting process: (1) totalling
of subsidiary books, (2) posting of journal entries in the ledger, (3) calculating
account balances, (4) carrying account balances to the trial balance, and (5)
totalling the trial balance columns.
It may be noted that the accounting accuracy is not ensured even if the
totals of debit and credit balances are equal because some errors do not affect
equality of debits and credits. For example, the book-keeper may debit a correct
amount in the wrong account while making the journal entry or in posting a
journal entry to the ledger. This error would cause two accounts to have
incorrect balances but the trial balance would tally. Another error is to record
an equal debit and credit of an incorrect amount. This error would give the
two accounts incorrect balances but would not create unequal debits and
credits. As a result, the fact that the trial balance has tallied does not imply
that all entries in the books of original record (journal, cash book, etc.) have
been recorded and posted correctly. However, equal totals do suggest that
several types of errors probably have not occured.
6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements 6.2.3 To Help in the Preparation of the Financial Statements
Trial balance is considered as the connecting link between accounting records
and the preparation of financial statements. For preparing a financial
statement, one need not refer to the ledger. In fact, the availability of a tallied
trial balance is the first step in the preparation of financial statements. All
revenue and expense accounts appearing in the trial balance are transferred
to the trading and profit and loss account and all liabilities, capital  and assets
accounts are transferred to the balance sheet.
(Preparation of the financial statements is explained in chapters, 9 and 10).
2024-25
Accountancy 184
6.3 Preparation of Trial Balance
Theoritically spreading, a trial balance can be prepared in the following three
ways:
(i) Totals Method
(ii) Balances Method
(iii) Totals-cum-balances Method
6.3.1 Totals method 6.3.1 Totals method 6.3.1 Totals method 6.3.1 Totals method 6.3.1 Totals method
Under this method, total of each side in the ledger (debit and credit) is ascertained
separately and shown in the trial balance in the respective columns. The total of
debit column of trial balance should agree with the total of credit column in the
trial balance because the accounts are based on double entry system. However,
this method is not widely used in practice, as it does not help in assuming accuracy
of balances of various accounts and and preparation of the fianancial statements.
6.3.2 Balances Method 6.3.2 Balances Method 6.3.2 Balances Method 6.3.2 Balances Method 6.3.2 Balances Method
This is the most widely used method in practice. Under this method trial balance
is prepared by showing the balances of all ledger accounts and then totalling up
the debit and credit columns of the trial balance to assure their correctness. The
account balances are used because the balance summarises the net effect of all
transactions relating to an account and helps in preparing the financial
statements. It may be noted that in trial balance, normally in place of balances
in individual accounts of the debtors, a figure of sundry debtors is shown, and
in place of individual accounts of creditors, a figure of sundry creditors is shown.
6.3.3 Totals-cum-balances Method 6.3.3 Totals-cum-balances Method 6.3.3 Totals-cum-balances Method 6.3.3 Totals-cum-balances Method 6.3.3 Totals-cum-balances Method
This method is a combination of totals method and balances method. Under
this method four columns for amount are prepared. Two columns for writing
the debit and credit totals of various accounts and two columns for writing
the debit and credit balances of these accounts. However, this method is also
not used in practice because it is time consuming and hardly serves any
additional or special purpose.
Let us now learn how will the trial balance be prepared using each of
these methods with the help of the following example:
Mr. Rawat’s ledger shows the following accounts for his business. Help him
in preparing the trial balance using: (i) Totals method,
(ii) Balances method, (iii) Totals-cum-Balances method.
2024-25