Trial Balance
and Rectification
of Errors

Topics Covered
• What is Trial Balance
• Format of Trail Balance
• Objective of Trial Balance
• Significance of Trial Balance
• Methods of Making a Trial Balance
• Classification of Errors
• Rectification of Errors

Accounting Cycle

What is Trial Balance
The Trial Balance is a table where we lay out all
our debit accounts and all our credit accounts to
see if they balance or not.

Format of Trial Balance
Titles: Name of the company, trial balance and date of preparation are
written.
Account Titles: For example, Capital account, Furniture account, Cash account etc
Debit balance: All debit balances of ledger
accounts are written in this column.
Credit balance: All credit balances of ledger
accounts are written in this column.

Objective of Trial Balance
• To check arithmetical accuracy
Arithmetical accuracy in ledger posting means writing correct amount, in the correct account and on its
correct side while posting transactions from various original books of accounts, such as Cash Book,
Purchases Book, Sales Book, etc. It also means not only the correct balance of ledger account but also
the totals of the special purpose Books.
• To help in preparing Financial Statements
The ultimate objective of the accounting is to prepare financial statements i.e. Trading and Profit and
Loss Account, and Balance sheet of a business enterprise at the end of an accounting year. These
statements contain balances of various ledger accounts. As Trial Balance contains balances of all ledger
accounts, in financial statements the balances of ledger accounts are carried from the Trial balance for
proper analysis
• Helps in locating errors
If total of two columns of the trial balance agrees it is a proof of arithmetical accuracy in the ledger
posting. However, if the totals of the two columns do not tally it indicates that there is some mistake in
the ledger accounts. This prompts the accountant to find out the errors.

• Helps in comparison
Comparison of ledger account balances of one year with the corresponding balances
with the previous year helps the management taking some important decisions. This
is possible by using the Trial Balances of the two years.
• Helps in making adjustments
While making financial statements adjustments regarding closing stock, prepaid
expenses, outstanding expenses etc are to be made. Trial balance helps in identifying
the items requiring adjustments in preparing the financial statements

Characteristics
• Trial balance is neither an account nor a part of it. It is a
statement containing all balances of ledger accounts.
• It is not recorded in any book of account. The trial balance is
prepared in a separate sheet or paper.
• The trial balance is prepared with the balances of accounts at the
end of a particular accounting period. A trial balance is prepared
before preparation of financial statements at the end of
accounting period.
• The statement contains all kinds of accounts, irrespective of their
classifications, such as assets liabilities, income-expenses etc. It
helps to test the arithmetical accuracy of accounts.
•

Methods of Making Trial
Balance
• Balance Method
In this Balance method, the balance of each account (which may be debit
balance or credit balance) is extracted and written against each account; we
write debit balance in the debit column and credit balance in the credit
column.
• Total Method
In this method the total of both sides of every account in the ledger is
written against the name of the respective account without balancing them
in the form of debit and credit balances respectively.
• Balance totals Method
Trial Balance is prepared by combining the first and second methods.

Numerical 1

Numerical 2

Numerical 3

Numerical 4

Numerical 5

Classification of errors
• Error of Principle : if accountant records any transaction against the rules of double
entry system, then this mistake is called error of principle
• Clerical Error
a) Errors of Omission: If accountant forgets to pass the journal entry of any transaction or if
he records only one part of transaction, then these mistakes are called errors of omission.
Accountant can also forget to post any journal entry in ledger accounts.
b) Errors of Commission: If accountant passes the wrong entry or posts wrong side of
ledger accounts or writes wrong amount or calculates wrong total of any account, then
these types of mistakes are called errors of commission. Some of errors of commission can
easy find out by making trial balance but some errors of commission can not find out
through trial balance.
c) Compensating Errors :Sometime we compensate one error with any other errors. For
example we write Rs. 500 less in the credit side of sales account but same time we write
less Rs. 500 in the debit side of purchase account. This is the error which can not be
revealed through trial balance.

Stages of Rectification
• Rectification before the preparation of Trial
Balance: By debiting or crediting the
respective account with the required amount
by giving an explanatory note in the particular
columns.
• Rectification after the preparation of Trial
Balance: By writing a journal entry with the
respective account/s affected by the errors
and suspense account

Basic Principles of
Rectification of Errors
Errors Solution
Excess debit in one or more accounts Credit the excess account
Short debit in one or more accounts Further debit to the respective
accounts
Excess credit in one or more
accounts
Debiting the respective account with
the excess amount involved
Short credit in one or more accounts Further credit the respective account

3 important models of
rectification of errors
• Overcasting and under casting
• Before preparing the Trial balance
• After preparing the Trial balance

Numerical 6
Rectify the following errors
• Purchase book overcast by Rs 300
• Purchase return book overcast by Rs 150
• Sales book undercast by Rs 2000
• Sales return book undercast by Rs 200

Sno. Nature of Mistake Effect of Mistake Rectification
1 Overcast of Purchase book Excess debit in
Purchase account
Credit the
purchase account
2 Overcasting of Purchase
Return book
Excess credit in
Purchase return
book
Debit the
Purchase Return
book
3 Undercasting of Sale Book Short credit in
sales account
Give further
credit to sales
account
4 Undercasting of Sales return
book
Short debit in
sales return book
Give further debit
to sales return
book

Numerical 7
Before preparing the Trial Balance

Numerical 8

Numerical 9

Numerical 10

Numerical 11

Numerical 12

What is a suspense
account?
• an account in the books of an organization in
which items are entered temporarily before
allocation to the correct or final account.
• this is used for rectification of errors after
making the trial balance.

Numerical 13
An accountant was unable to match the trial balance. The difference of Rs 5000 was temporarily placed to the credit of
suspense account for preparing the final accounts. The following errors were located later:
1. Commission of Rs 400 paid, was posted twice, once to the discount allowed account and once to the commission
account
2. The sales book was undercast by Rs 800
3. A credit sales of Rs 2750 to Alice though correctly entered in Sales book , was posted wrongly to her account as Rs
3570
4. A credit purchase from Danila of Rs 1750, though correctly entered in purchase book, was wrongly debited to her
personal account
5. Discount column of the payment side of cash book was wrongly added as Rs 3640 instead of Rs 3120
You are required to
- Journalize the necessary rectification entries
- Prepare Suspense account

Errors Particulars Debit Credit
1 Suspense account
to discount allowed account
[amount wrongly debited to discount allowed account,
now rectified ]
400 400
2 Suspense account
to Sales account
[sales account was undercast, now rectified]
800 800
3 Suspense account
to Alice Account
[Alice account overcast by Rs820, now rectified]
820 820
4 Suspense account
to Danila Account
[Danila account wrongly debited and the credit entry by
Purchase account was not recorded, now rectified]
3500 3500
5 Discount Received account
to Suspense account
[excess of discount received amount was recorded, now
rectified]
520 520