What are the types of errors & their effects on agreement of trial balance?

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Answer Solution: Classification of Errors (types of errors) and its effect on agreement of Trial Balance : 1. Errors of Principle:  That means there is error in applying some accounting principle.  Such errors will not affect the agreement of trial balance i.e. these are double sided error.  Ex. Treating a revenue expense as capital expenditure or vice versa or the recording of sale of a fixed· asset as ordinary sale. 2. Clerical Errors:  These are the errors committed in applying the accounting procedure.  Such errors may or may not affect the agreement of trial balance.  These can be further classified as follows: (a) Errors of Omission: (i) Omitting an entry completely from the subsidiary book. Full omission hence Trial Balance will agree. Ex.: Sale of~ 5,000 to A on 30.3.16 is not recorded. (ii) Omitting to post the ledger account from the subsidiary books. Partial omission hence Trial Balance will not agree. Ex.: A sale entry of~ 10,000 not posted to A's A/ c. (b) Errors of Commission: (i) Writing wrong amount in the Subsidiary book. Trial Balance will agree. Ex.: A purchase of Rs.5,000 from 'X' is entered in purchase book as Rs.500 (ii) Posting the wrong account in the ledger. Trial Balance will agree. Ex.: From Sales book A's account is debited by Rs. 8000 instead of B's account (iii) Wrong casting of subsidiary books. Ex.: Total of Bills Receivable book is taken as Rs. 1,05,000 instead of Rs. 1,00,500 (iv) Posting the wrong amount in the ledger. Ex.: From Sales Return book A's account is credited by Rs. 8,000 instead of Rs. 8,800 (v) Posting an amount on the wrong side of an account. Ex.: From Sales Book L's account is credited (vi) Wrong balancing of an account. Ex.: Balance of Furniture account is taken as Rs. 7,000 instead of Rs. 3,000 Note: In case of errors described in (iii) to (vi) above, Trial Balance will not agree. (c) Compensating Errors: Two or more mistakes which compensate the effect of each other on trial balance & hence Trial Balance will agree. Ex.: Excess debit Rs. 1,000 to Furniture A/ c & Excess credit of Rs. 1,000 to Sales A/c.

What are the types of errors & their effects on agreement of trial balance?

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