Errors

Errors of principleError of principle is committed when a transaction is recorded in a

fundamentally incorrect manner Such error involves an incorrect allocation of expenditure or
receipt between capital and revenue. For example. freight paid for bringing new machinery Is
posted to freight account or asset purchased is recorded in the purchases book. Other
examples of such errors are purchase of furniture recorded in Purchases Book and wages paid
for installation of machinery recorded as wages.
Compensating errors An error. which is counter-balanced by another error in errors in
such a way that it is not disclosed by the Trial Balance. is compensating error. Compensating
errors mutually compensate and do not affect the agreement of two sides of Trial Balance.
For example. Purchases Book and Sales Book arc both undercast by Rs 1.000 Other
examples of such errors are undercasting of salaries by Rs. 500 while overcasting of printing
by Rs 300 and of rent by Rs 200.

Rectification of Errors
Rectification of errors means correction of errors by way of rectifying entries For the
purpose of rectification of errors. these may be classified into two parts
One sided errors One sided errors are those Which affect only one account Such errors
are found and corrected during the course of the accounting period before the hooks are
closed. Such errors include totalling errors. balancing error-. errors of omission of posting.
errors of posting of wrong account and errors of posting on the reverse side of the ledger.
Two sided errors-Two sided errors are those which affect two or more than two accounts at
the same time. Such errors are found and corrected by passing a journal entry. Such errors
include error of complete omission. error of commission. error of principle and compensating
errors

Suspense Account
If the two sides of Trial Balance do not agree. it implies that there .ire certain one-sided
errors in the Books of Account If it is not possible to locate the errors. the amount of
difference in the Trial Balance is put in an account known as "Suspense Account" till such
rime those errors are located Thus. Suspense Account is an account in which the amount of
difference in the Trial Balance is put temporarily If the debit side of trial Balance exceeds the
credit side. the difference In the trial balance is transferred to the credit side of the Suspense
Account and vice-versa.
The rationale behind the opening of a Suspense Account is to avoid delay in the
preparation of final accounts (financial statements). However. Suspense Account should be
opened by an accountant only when he has failed to locate the errors inspire of his best
efforts. It should not be a normal practice because the very existence of Suspense Account
creates doubt about the authenticity of the Books of Accounts.
When the errors affecting the Suspense Account arc located. they are rectified with the help
of Suspense Account When all the errors affecting lite Trial Balance are located and rectified.
the Suspense Account will automatically stand balanced and closed. Ir nil the errors affecting
the Trial Balance have not been rectified. Suspense Account will show certain balance. Debit
balance of Suspense Account is shown on the asset side while credit balance of Suspense
Account is shown on the liabilities side of the Balance Sheet.

"VERY SHORT ANSWER TYPE QUESTIONS"

Questions carrying one murk each :
Q.I. What is meant by trial balance ?
Ans. Trial balance means a list or schedule of balances prepared on a particular date to
determine the arithmetical accuracy of accounts.

Q.2. State the basic purpose for the preparation of trial balance.
Ans. The basic purpose for preparation of trial balance is to test arithmetical accuracy of the
transactions.