Accounting Transactions And All Entry Question Answer Notes

Q.6. What is the error not disclosed by trial balance even on its agreement? Discuss briefly.

Or What are the errors disclosed by trial balance?

Ans. Errors not Disclosed by Trial Balance: Following errors are not disclosed by a trial balance even when it tallies. These are also known as limitations of trial balance:

1. Errors of Principle: Sometimes errors are made due to insufficient knowledge of accounting principles. Hence, when errors are created due to violation of accounting principles, rules and regulations, then such errors are termed as errors of principles, e.g, if a cloth merchant purchases

machinery, here machinery account is to be debited, but if purchases account has been debited even then trial balance will tally, but there remains a mistake of principle. It means that a clear distinction must be made between capital and revenue expenditure, capital and revenue receipts and capital and revenue losses. If it is not done, it is regarded as an error of principle.

2. Errors of Omission: When no entry is made for a transaction in journal or in its subsidiary books or posting in ledger, then also trial balance will tally. Such errors are known as errors of omission. Such errors are not disclosed by trial balance. However, if the posting of transaction is partly omitted it will certainly affect the trial balance from being tallied.

3. Compensatory Errors: If one account in ledger is debited with 300 less and other account in ledger is credited with 300 less then also trial balance will tally. Such errors are called compensatory errors and they are not disclosed by trial balance.

4. Errors of Commission: When business transactions are recorded and posted in wrong manner then such errors are referred to as errors of commission. This may be in case of recording of wrong amount in the subsidiary books, posting an amount to wrong account, wrong balancing of an account, wrong totalling, etc. Errors of commission of the nature of sided errors affect the agreement of trial balance, e.g. wrong totalling, posting on wrong side of an account, posting of wrong amount, wrong balancing.

5. Errors of Duplication: If an entry is made twice in journal and its posting is also made twice, the trial balance will tally but such error will not be disclosed.

Errors Disclosed by Trial Balance Entrys

When there are some errors, then trial balance will not tally. Following errors are disclosed by the trial balance:

1. While posting from journal to ledger, omission of posting of some account is made, e.g.furniture purchased for cash 5,000. In this case, 500 are recorded in the debit side of furniture account but not recorded in the credit side of cash account.

2. While making posting in ledger, wrong amount is recorded in one account, e.g. instead of posting 105 in the debit side of an account, *150 have been posted.

3. Balance of cash book is not recorded in trial balance.

4. While making total of subsidiary books, like sales book, purchases book, etc. mistakes are made, in such case sales and purchases account in ledger will be posted with wrong amounts

and trial balance will not tally.

5. Sometimes total of one subsidiary books like sales book is posted in the account of other subsidiary book like purchases book.

6. Some errors are committed at the time of balancing a ledger account.

7. Correct balance has been recorded in the accounts of ledger, but while writing these balances in trial balance, errors has been committed, either of the amount or of the side.

8. Error is made in totalling the trial balance.

9. Error is made at the time of preparing lists of debtors and creditors.

10. Error is made in carrying forward the total of one page of subsidiary books or account on the other page.

11. Some balances of ledger accounts have not been recorded in trial balance.

12. One amount has been posted twice in the ledger account, hence, wrong balance is transferred to trial balance.

BCOM 1st Year Accounting Transactions And All Entry Question Answer Notes

Q.7. Explain the methods of tallying the trial balance.

Methods of Tallying the Trial Balance Or Location and

Correction of Errors for Tallying the Trial Balance

If the trial balance does not tally, following methods should be adopted to tally it:

1. Recheck the totals of debit and credit balances of trial balance.

2. If the totals of debit and credit are correct, then write the difference of these totals separately.

3. Try to see that some balance of ledger may be equal to this difference and it might has not been posted.

4. Make half of the amount of difference and see that this amount is not recorded in the wrong side of trial balance.

5. Make 1/9 of the total as it may be possible that zero is added or zero is left out in some balance by mistake. If zero is added the amount will become ten times and if zero is left out the amount will become 1/10. In such a case, difference will definitely be divisible by 9. Following example will make this point clear:

Trial Balance (as on ……)

	Dr. Rs	Cr. Rs.
First Account	50	60
Second account	70	40
Third account	80	100
	200	200

If by mistake, the debit balance of first account is recorded 5 instead of 50, then total of debit balances will be (5 + 70 + 80) or 155 while total of credit balances is 200, the difference of these two, i.e. 200 and 155 is 45. which is divisible by 9.

6. Count all the accounts of ledger and see that balances of all of them have been recorded in trial balance.

7. Recheck the totals and balances of all the accounts of the ledger.

8. See that balance of cash book has been recorded in the trial balance.

9. See that totals of subsidiary books have been recorded in the ledger and balance of account related to them have been taken to trial balance.

10. See that correct posting has been made from journal to ledger.

11. See that balances of last year, which have been brought forward, have been correctly recorded.

12. Compare the heads of accounts of the current year with the heads of accounts of the previous year.

13. Examine the writing of digits. Sometimes at the time of recording, digits are reversed as for 85, the figure recorded is 58.

14. If after making complete checking of journal and ledger, mistake is not found out, then transfer the difference to suspense account and in future when error is found out, the suspense account is closed.

Q.8. Journalise the following transactions in the books of Mr. Anil Kumar: – Year 2000

Jan. 1 He paid into bank * 2,000.

Jan. 2 He distributed goods by way of free sample 1,000.

Jan. 5 He withdrawn goods for personal use 4,000.

Jan. 8 He purchased goods worth 5,000 for cashless 20% trade discount and 5% cash discount.

Jan. 10 He paid salary to Ratan 1,000.

Jan. 15 He received interest from Madhu 400.

Jan. 20 He returns goods to Amrit 400.

Q.9. Explain the following terms:

1. Opening entry. 2. Compound entries. 3. Trade discount. 4. Cash discount.

Ans. 1. Opening Entry: Every firm closes its books of account at the end of each year and starts its new books in the beginning of the next following year. The first entry in the journal is made for the purpose of recording the closing balances shown in the previous year balance sheet which has to be brought forward to current year. Since, it is the first entry which initiates the accounting cycle of the new accounting year, it is called as opening entry. In opening entry, all assets are debited and all liabilities accounts are credited and the difference is credited to capital account.

Example: Pass the opening entry on the basis of following information:

Cash in hand 4,500

Stock 13,700

Machinery 9,600

Furniture 2,500

Sundry debtors 4,700

Sundry creditors 8,600

Particulars	L.F.	Amount (Rs) (Dr.)	Amount (Rs.) (Cr.)
Cash in hand A/c Dr.		4,500
Stock A/c Dr.		13,700
Machinery A/c Dr.		96,600
Furniture A/c Dr.		2, 500
Sundry debtors A/c Dr.		4,700
To Sundry Creditors A/c			8,600
To Capital A/c (Balancing figure)			26,400
(Being the balances brought forward)

2. Compound Entries: Sometimes there are a member of transactions on the same date relating to one particular account or of one particular nature. Such transaction may be recorded by means of a single journal entry instead of passing several journal entries. Such entries regarding a number of transactions are termed as ‘Compound Entries’.

It may be recorded in any of the following three ways:

(a) By debiting one account and crediting other several accounts.

(b) By crediting one account and debiting other several accounts.

Example: A running business was purchased by Mr. X with the following assets and liabilities:

Cash * 2,000, Plant & Machinery * 15,000, Stock 6,000, Furniture 4,000, Debtors 7,000, Creditors 5,000, Bank overdraft 5,000.

Particulars	L.F.	Amount (Rs) (Dr.)	Amount (Rs) (C.r)
Cash A/c Dr.		2,000
Plant & Machinery A/c Dr.		15,000
Stock A/c Dr.		6,00
Furniture A/c Dr.		4, 000
Debtors A/c Dr.		7, 000
To Creditors A/c			5.000
To bank overdraft A/c			5,000
To Capital A/c			24,000
(Being business purchased)

3. Trade Discount: Trade discount is a deduction from the list price allowed by wholesalers to the retailers for various reasons. The rate of trade discount varies considerably. From accounting point of view, no entries are made either in seller’s book or in the purchaser’s book for trade discount. Entries for sales and purchases are made at net price, i.e. after deducting trade discount from the list price. For example, if the list price of goods sold is * 2,000 and trade discount at the rate of 20% is allowed by the seller, net sale price will be computed as follows:

Particulars	Amount (Rs) (Dr.)	Amount (Rs.) (Cr.)
List price of goods sold		2,000
Less: Trade discount @ 20%		400
Net price of goods		1,600
Journal entry in the seller’s books
Purchaser A/c	Dr.	1,600
To Sales A/c
(Goods sold worth Rs 2,000 less trade discount @ 20%)
Journal entry in the purchaser’s books
Purchase A/c	Dr.	1,600
To Seller A/c
(Being goods purchased worth Rs. 2000 less trade discount @ 20%)

4. Cash discount : Cash discount is a deduction allowed by the seller to the purchaser, provided the latter pays his bills promptly or within a specified period, known as the ‘period of credit. Cash discount is calculated on the net sale, i.e. after deducting trade discount. Likewise, a definite percentage of net sale price, cash discount term may also be stated in the following manner: 2/10, n/30 (read as 2% in 10 days, net 30 days). This means that a 2 per cent discount will be allowed if the invoice is paid within 10 days from the date of sale and that by foregoing the discount, the purchaser can postpone payment of invoice until 30 days after its date.

In view of the fact that cash discount is always allowed or received when the payment is made, it is nécessary to record this fact at the same place where cash transaction is recorded. Cash discount may be either receivable or payable. It is receivable by the purchaser and payable by the seller. Since sales discount reduces the amount received for sale, it is a loss to the seller and hence debited in his book. Likewise, for the purchaser, it reduces the cost of merchandise acquired for resale, it is a gain for him and hence credited in his book.

Q.10. Distinguish between:

(i) Errors of principle and clerical errors.

(ii) Errors of omission and compensatory errors.

(iii) Errors of commission and errors of principle.(2016)

Ans. (i) Distinction between Errors of Principle and Clerical Errors

S.No.	Basis of difference	Errors of principle	Clerical errors
1.	Effect of trial balance	This error does not affect trial balance.	This error may effect trial balance.
2.	Cause	This error is due to wrong classification of the transaction and unawareness of accounting principles.	This error is due to clerical staff mistake in recording he transaction.
3.	Effect on profit	This error affects profit of the business	This error may or may not affect profit of the business.
4.	Effect on balance sheet	This error will affect value of assets or liabilities.	This error may or may not affect value of assets or liability.
5.	Type	This error is a type of errors.	Clerical errors are the errors committed in recording the transaction.

(ii) Distinction between Errors of Omission and compensatory Errors

S.No.	Basis of difference	Errors of omission	Compensatory errors
1.	Effect on trial balance	If transaction is completely omitted, then trial balance will tally but if transction is party omitted then it will affect the trial balance.	This error does not affect trial balance.
2.	Cause	This error is due to complete omission or partial omission in recording the transaction.	This error is due to clerical mistake in recording the transaction.
3.	Nature	This is a clerical error.	This is also a clerical error.
4.	Recording of transaction	It is the partical or complete omission of recording a transaction.	It is a combination of two or more errors which mutually compensate the effect of one another.
5.	Effect on balance sheet	It will affect the balance sheet	It may or may not affect the balance sheet.

(iii) Distinction between Errors of commission and Errors of Principle

S.No.	Basis of difference	Errors of commission	Errors of principle
1.	Effect on trial balance	It will affect the trial balance .	It will not affect the trial balance.
2.	Cause	This error is due to wrong account posting, wrong side posting, wrong totaling or carry forward or wrong balancing.	This error is due to violating the principles of accounting.
3.	Nature	This is a clerical error.	This is not a clerical error.
4.	Effect on profit	This error may or may not affects profit of the business.	This error affects profit of the business.
5.	Effect on balance sheet	This error may or may not affect the balance sheet.	This error will affect the value of assets and liability.

B.Com Ist Year Foreign Trade And Economic Growth Question Answer Notes

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BCOM 1st Year Accounting Transactions And All Entry Question Answer Notes

Errors Disclosed by Trial Balance Entrys

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