Unit – 4



Q1. What is trial balance? What are its features?

Ans. Trial balance is an abstract or list of the ledger accounts at a specified date, showing debit and credit balances for all the accounts and the cash book. It has two amounts columns – one for debit amount and the other for credit amount. It is prepared periodically, usually, at the end of each month/year. It is a statement prepared to test the arithmetical accuracy of the ledger accounts.

        According to Carter, “Trial balance is the list of debit and credit balances, taken out from ledger; it also includes the balances of cash and bank taken from cash book.”

 Following are the features of trial balance:

1. It is just a statement, and not an account.

2. It is neither a part of double entry system, nor does it appear in the actual books of accounts. It is usually, prepared on a loose sheet of paper.

3. It is list of balances of all ledger accounts and the cash book.

4. It can be prepared at any time during the accounting period, say, at the end of every month, every quarter or every year.

5. The total of debit and credit amount columns of the trial balance must tally.

Q2.  What are the objectives of trial balance?

Ans. Following are the objectives of trial balance:

 1. To ascertain the arithmetical accuracy of ledger accounts: A trial balance is prepared to check the arithmetical accuracy of the ledger accounts. If the sum of the debit and credit columns of trial balance is equal, it is assumed that the posting to the ledger accounts, its totaling and balancing is accurate.

2. Completion of double entry: It proves that both the aspects of each transaction are recorded. If the totals of both sides are equal, it is believed that the records are complete and reasonably trustworthy.

3. Ledger account balances: It is a consolidated summarized statement of balances of accounts on a certain date. It enables one to know the details of assets, liabilities, expenses, losses, incomes etc.

4. To help in the preparation of final accounts: A trial balance is used as a connecting link between the ledger and the final accounts, Trading and profit & loss account, and balance sheet are prepared on its basis.


Q3. What are the advantages and disadvantages of trial balance?

Ans. Following are the advantages of trial balance:

1. Check upon the ledger postings: The trial balance provides an internal check upon the ledger postings. It ensures that both the aspects of each transaction have been duly posted into ledger i.e., the dual aspect of each transaction has been completed.

2. Arithmetical accuracy: The trial balance proves the arithmetical accuracy to a great extent. It ensures that the posting in the ledger account has been made with correct amount, the totaling and balancing of ledger accounts is correct.

3. Facilitates the preparation of financial statements: It is very convenient to prepare the financial statements from the balance method of trial balance.

4. Connecting link: Trial balance is a connecting link between the ledger accounts and the financial statements.

5. Useful data for management: The various balances of real, nominal and personal accounts provide useful information in a convenient form to the management for comparing the balances and arriving at conclusions.

Following are the limitations of trial balance:

1. The trial balance can be prepared only in those concerns where double entry system of book keeping is adopted. This system is too costly.

2. A trial balance is not a conclusive proof of the arithmetical accuracy of the books of account.

3. It the trial balance is wrong, the subsequent preparation of Trading, Profit & loss account and Balance Sheet will not reflect the true picture of the concern.

4. The trial balance does not give any information regarding operational results and financial position.

Q4. Give two functions of trial balance.

Ans.  Following are the functions of trial balance:

1. It provides a check on the accuracy of ledger account balances, ensuring that entries have been made correctly.

2. It provides the arithmetical accuracy of accounts.

3. It makes preparation of the final accounts easier.

Q5. What is rectification of errors?

Ans. It is a process through which the errors or mistake in the books of accounts are corrected. Rectification entries are the entries made in the books of account for correction of errors.

Q6. What is suspense account?

Ans. It is an account in which the difference in the trial balance is put temporarily till the errors are located and rectified.

Q7. Explain five errors which are not disclosed by a Trial Balance.

Ans. Errors not disclosed by the Trial Balance are as follows:

1. Errors of omission: If a transaction is not recorded in the books of original entry then both debit and credit effects of the transaction are omitted and trial balance shall not be affected.

2. Errors of commission: These errors are the result of carelessness of accounting staff and in some of the cases such errors do not affect the totals of trial balance.

3. Compensating errors:  When two or more errors are committed in such a way that effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors. Such errors do not affect the tally of the trial balance.

4. Errors of principle: Whenever any income or expenditure is not properly allocated between capital and revenue, the mistake so made is called a mistake of principle. The trial balance shall remain unaffected by such errors.

Q8. What are the different types of errors?

Ans: Following are the different types of errors:

1. Errors of omission:

a. Complete omission

b. Partial omission

2. Errors of commission

a. Errors of principle

b. Errors of posting

c. Errors of casting

d. Compensating errors