Mention FOUR errors that the trial balance will not reveal.
The errors that the trial balance will not reveal include:
(i) Error of Omission
(ii) Error of Commission
(iii) Error of Original Entry
(iv) Error of Principle
Define a Trial Balance and explain its purpose.
A trial balance is a summary of balances in the ledgers at a particular time. It is extracted to test the arithmetical accuracy of the entries in the ledgers. Extracting the trial balance is the first step in preparing the financial statements (i.e. statement of profit or loss and statement of financial position).
The following balances were extracted from the books of Omoba Enterprises as at 31 December 2013:
| Details | N’000 |
|---|---|
| Accumulated depreciation | 85,000 |
| Administrative expenses | 775,000 |
| Accounts payables | 585,000 |
| Subscription | 15,000 |
| Rent and rates | 130,000 |
| Accounts receivables | 475,000 |
| Postage and stationery | 125,000 |
| Newspapers & periodicals | 40,000 |
| Utility | 35,000 |
| Allowances for Bad debt | 85,000 |
| Property, plant and equipment | 925,000 |
| Retained earnings | 575,000 |
| Audit fees | 85,000 |
| Revenue | 2,500,000 |
| Cost of sales | 800,000 |
| Other income | 82,000 |
| Cash and bank balances | 882,000 |
| Capital | 375,000 |
Required:
i. Use the information above to extract a trial balance of Omoba Enterprises as at 31 December, 2013. (12 Marks)
ii. Use the information below to recompute the entity’s capital for the period under review:
(i) Trial Balance of Omoba Enterprises as at 31 December 2013:
| Details | Debit (N’000) | Credit (N’000) |
|---|---|---|
| Accumulated depreciation | 85,000 | |
| Administrative expenses | 775,000 | |
| Accounts payables | 585,000 | |
| Subscription | 15,000 | |
| Rent and rates | 130,000 | |
| Accounts receivables | 475,000 | |
| Postage and stationery | 125,000 | |
| Newspapers & periodicals | 40,000 | |
| Utility | 35,000 | |
| Allowances for Bad debt | 85,000 | |
| Property, plant, and equipment | 925,000 | |
| Retained earnings | 575,000 | |
| Audit fees | 85,000 | |
| Revenue | 2,500,000 | |
| Cost of sales | 800,000 | |
| Other income | 82,000 | |
| Cash and bank balances | 882,000 | |
| Capital | 375,000 | |
| Total | 4,287,000 | 4,287,000 |
(ii) Recomputed Capital for Omoba Enterprises:
The purpose of a trial balance is to prove the accuracy of the General Ledger accounts of a business. However, the “balancing” of the debit side and the credit side of a trial balance does not guarantee that there is no error in the General Ledger accounts.
i. State TWO uses of a trial balance to an entity. (2 Marks)
ii. State FOUR errors that may lead to difference in trial balance total figures. (2 Marks)
iii. State FOUR errors that may NOT affect the “balancing” of a trial balance. (2 Marks)
(i) Two uses of a trial balance to an entity:
(ii) Four errors that may lead to a difference in trial balance total figures:
(iii) Four errors that may NOT affect the “balancing” of a trial balance:
Which of the following errors does NOT affect the balancing of a trial balance?
A. Error of principle
B. Casting error
C. Transposition error
D. Duplication of entries
E. Missing entries in the ledger
Answer: A
Explanation:
An error of principle involves misclassification of transactions, but it does not affect the arithmetic balance of the trial balance.
Which of the following errors will cause the trial balance totals to be unequal?
A. Errors of transposition
B. Errors of omission
C. Errors of principle
D. Compensating error
E. Error of commission
A. Errors of transposition
Explanation:
Errors of transposition occur when digits are reversed, causing a mismatch in the trial balance. For example, writing N542 instead of N452 can result in unequal totals. Other errors, such as errors of omission or principle, do not cause trial balance discrepancies.
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