Errors & suspense Flashcards
Explain the meaning of the term Trail Balance
A list of all debit and credit balances in the ledger accounts on a specific date
State the reasons for preparing a Trail Balance
It helps to check the arithmetical accuracy of ledgers and the correctness of the double entry principle
Explain and distinguish between pre-adjustment, post-adjustment and post closing Trail Balance
Pre-adjustment TB: Drawn up by using the amounts from different subsidiary ledgers and it doesn’t include any adjustments required at year-end
Post-adjustment TB: Includes all adjustments required at year-end by applying the matching principle
Post closing TB: List of balances of OE and asset and liability accounts after the nominal accounts have been closed off for the year and it’s used to draw up the set of financial statements. It only has the balance sheet account section
What are the errors that don’t affect the TB?
Error of commission Error of omission Error of principle Error of original entry Complete reversal of entries Compensating error
Explain what error of omission is
When the transaction is completely left out from the records. No debit or credit entry has been made
Explain error of commission
When the correct amount has been entered but in the wrong person’s account
Explain error of principle
When the transaction was entered in the wrong type of account but the amount is correct
Explain error of original entry
When the figures used is wrong but the double entry principle is done correctly
Explain complete reversal of entries
When the debit and credit entries are made for the correct amount but posted to the wrong sides of both accounts
Explain compensating error
Is a combination of two errors of the same amount, which cancel out the effect each one has on the TB
