CHAPTER 8 - THE TRIAL BALANCE

Question 1

Give 2 reasons for preparing a trial balance

Answer 1

1. Checks that double entry is arithmetically correct
2. Provides info for final accounts

Question 2

Which accounting equation applies to the Trial Balance and how?

Answer 2

A + E = C + L + I

Assets and Expenses are Debits

Capital, Liabilities and Income are Credits

Question 3

Name and describe the 6 errors not identified in a trial balance

Answer 3

1. Error of Commission - correct double entry but to wrong (but same type of) account (G Smith not T Smith)
2. Error of Principle - correct double entry but to wrong type of account (asset instead of expense) - affects final accounts
3. Error of Omission - transaction not entered at all
4. Error of original entry - wrong figure entered in both accounts
5. Complete reversal of entries - correct figures posted on wrong side of both accounts
6. Compensating Error - 2 or more errors of same amount net off

Question 4

Why is correcting a Complete reversal of entries different to other corrections

Answer 4

have to enter double the amount of the original entry to correct - once to reverse and once to register the original transaction

eg. if we credit bank and debit debtor (where debtor has just paid)

We’d need to debit the bank twice as much (once to reverse and once to register the correct amount on the debit side)

And we’d have to double credit the debtor