TRAIL BALANCE & ERRORS | JAIIB AFM EXAM 2024
Through this post we will get insight on the Trial Balance & the errors, including its types to prepare for JAIIB MAY 2024 Exams.
So, how have you been, bankers?
Missing any notes from your JAIIB Study material for AFM Paper?
Then, you are at the right place! We have so many notes for all the Junior Associate of the Indian Institute of Bankers papers for upcoming 2023 exams & that too totally free! The notes take up the concepts from IIBF’s prescribed Syllabus for JAIIB Exams.
And today, I am going to discuss about the Trail Balance & its errors as already mentioned in the title. So, come with me on this studious journey to crack JAIIB with ease.
To begin with, a trial balance is a statement that shows the total debit and credit balances of accounts. The sum of the debit amounts must equal the credit amounts to add up the trial balance. Thus, it verifies the arithmetical accuracy of accounting in accounting accounts. The trial balance is thus an integral part of financial accounting.
Although Trail Balance can itself – detect errors & can trace the mathematical inaccuracy of the ledger but there are a number of errors that a Trail Balance will not detect:
- Error of omission: When the transaction was not entered into the system.
- Commission error: When the transaction amount is correct, but the debited or credited account is incorrect. It is similar to the cardinal error described above, but the error of commission is usually the result of an oversight, while the cardinal error is the result of ignorance of accounting principles.
- Reversal error: When a double-entry transaction has been entered with the correct amounts, but the account to be debited is debited and the account to be credited is debited.
- Original entry error: A double-entry transaction contains incorrect amounts on both sides.
- Error of Principle: The entered transaction violates the basic principles of accounting. For example: the amount entered was correct and the appropriate party was selected, but the account type was incorrect (e.g. an expense account was debited instead of a real account).
Before we move forward, I would like to ask, are you with me? Basically, I am trying to ask, “Are you able to understand the practical aspects yet? It is difficult for some people, especially for those from non-commerce back-ground. If you are finding hard to understand, let me tell you, that I understand.
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Now, back to our notes:
BUT HOW DO WE FIND ERRORS?
When the balance sheet does not agree, we must look for and identify errors and correct them in order to prepare the financial statements. Here are the steps to find the errors:
- Recheck the totals of the debit and credit columns of the trial balance.
- Compare the trial balance account heads with the ledgers to check for a difference in amount or whether there is a complete account omission.
- Compare the trial balance to the previous year’s trial balance to see the additions and deletions of accounts. If there is a large difference in the account balance, verify that it is correct.
- Settle the accounts once again.
- Check the postings to the general ledger from the accounting entries & from the subsidiary ledgers as well.
- Amount difference between the debit and credit sides of the trial balance, when divided by 2, indicates the possibility of erroneously posting an amount equal to half the difference to the wrong side of another main account. For example: the total credit portion of the trial balance is higher by ₹1000. In this case, we will scan all credit items with an amount of ₹500.
The difference may also mean a complete or partial omission of the contribution. For example, a difference on the debit side may indicate that an amount was recorded in the books of the original entry but was omitted to be posted to the debit side of the account.
Lets’ solve a question:
Q: Classify the following errors of Trail Balance:
- A pays ₹ 10000 to B for the purchase of chairs. Cash register entry is correct but book entry is with ₹1000 only.
- Credit purchases of ₹ 10,000 not recorded in the purchase book.
- Cash book is debited by ₹ 5000 and purchases book is debited by ₹ 5000.
- Purchase of furniture ₹ 50,000 recorded in Purchases Book.
- Sales book is < ₹250
- Purchase of furniture of ₹20,000 is not charged to furniture account and income of ₹20,000 is also not charged.
- Error of the Commission
- Error of omission
- Error compensation
- Error of principle
- Error of the Commission
- Error compensation
Hopefully, you found this article useful & fully understood it! If you want any specific JAIIB Notes (free) on any topic, let me know in the comment section!