Topic 4 Trial balance & Rectification of Errors,.pptx

Edexcel A level (IAL-AS) Accounting Notes

1. Trial balance Grade 11

2. Learning objectives understand the nature and purpose of a trial balance prepare a trial balance from a set of ledger account balances understand the limitations of a trial balance

3. Trial balance List of all the balances extracted from the ledgers at a particular date. The principle of double entry ensures that the two totals should agree If the total do not agree, there must be an error

4. Purpose of trial balance

5. Limitations of trial balance… No detailed information of accounts is available. It does not show the profits or losses of the business. It cannot help to find out all the errors Errors which can not be revealed by the trial balance are : Commission, omission, principle, reversal, original entry & compensating

6. Format of trial balance

7. Errors Commission- Correct amount, class but wrong account Omission- where a transaction is completely omitted from the books Principle- Incorrect class of account Reversal- wrong side posting Original entry- Wrong amount on both sides Compensating errors- Two errors cancel each other.

8. Draft profit for the year ××× Errors Increase in draft profit £ Decrease in draft profit £ Decrease in provision ××× Increase in provision ××× Increase in accrued expenses & decrease in prepaid expense ××× Decrease in accrued expenses & increase in prepaid expenses ××× Increase in accrued income & decrease in income received in advance ××× Decrease in accrued income & increase in income received in advance ××× Inventory overvalued ××× Inventory undervalued ××× ××× Profit for the year ×××

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