Page 297 - Accountancy_F5

Errors affecting trial balance agreement
A business entity periodically prepares a trial balance, typically at the end of each reporting
period. The primary purpose of a trial balance is to verify the arithmetic accuracy of the
entity’s financial data. If the trial balance does not balance, efforts are made to locate
and correct the errors.
The following describes errors that can affect the agreement of a trial balance:
FOR ONLINE READING ONLY
(a) Single entry: A single entry violates the principle of the double-entry system, as
a business transaction is recorded only once, meaning no corresponding entry can
be found in the books of accounts. This discrepancy can cause the trial balance to
disagree. For instance, cash sales of TZS 100,000 is being recorded only in the cash
LANGUAGE EDITING
book.
(b) Overcasting and under-casting: Overcasting refers to an incorrectly recorded amount
that is higher than the actual amount of a business transaction, that is the recorded
figure is overstated. Under-casting, conversely, refers to a recorded amount that is
less than the actual amount of a business transaction, that is the recorded figure is
understated. These errors typically occur due to incorrect additions in the books of
accounts. For example, if the purchases account is understated by TZS 1,000,000,
this means the correct summation is less by this amount. As the purchases account
usually has a debit balance, the trial balance will not balance by TZS 1,000,000,
with the debit side having a lesser amount than the credit side by the same amount.
(c) Incorrect amount posted: An incorrect amount is posted to one account related
to the transaction, meaning all of the accounts involved would not balance for the
wrong amount. For example, purchase returns valued at TZS 680,000 are credited
in the purchase returns account as TZS 860,000, while the creditor account is
debited as TZS 680,000. This means the purchase returns account has been posted
with an incorrect amount (TZS 180,000), while the correct figure (TZS 680,000)

is accurately posted in the creditor account.

Correction of errors using suspense account
When the trial balance totals do not match, every effort should be made to find the errors
causing this discrepancy. If they cannot be found, the trial balance totals can be made to
agree by inserting the difference in figure (DIF) between the two sides (Dr and Cr), with
the smaller amount being the recipient side. The inserted figure is usually accompanied
by a description “suspense account” to reflect the name of a newly created account. A
suspense account is a temporary account used to carry doubtful entries and discrepancies
pending their analysis and permanent classification. It is an imaginary account opened
solely to resolve differences in totals found in the trial balance.

Student’s Book Form Five
284

23/06/2024 17:36
ACCOUNTANCY_DUMMY_23 JUNE.indd 284 23/06/2024 17:36
ACCOUNTANCY_DUMMY_23 JUNE.indd 284