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Previous Year Questions
Solve previous year questions to understand exam patterns
PYQ 1
CBSE
2018
A firm paid ₹ 12,000 as insurance premium on 1st October, 2021, for one year. Pass necessary journal entries on 31st March, 2022, for prepaid insurance adjustment.
Solution:
On 1st October, 2021:
Prepaid Insurance A/c Dr. 12,000
To Cash/Bank A/c 12,000
(Being insurance premium paid in advance for one year)
On 31st March, 2022 (adjustment entry):
Insurance Expense A/c Dr. 6,000
To Prepaid Insurance A/c 6,000
(Being insurance expense for 6 months charged to profit and loss account)
Prepaid Insurance A/c Dr. 12,000
To Cash/Bank A/c 12,000
(Being insurance premium paid in advance for one year)
On 31st March, 2022 (adjustment entry):
Insurance Expense A/c Dr. 6,000
To Prepaid Insurance A/c 6,000
(Being insurance expense for 6 months charged to profit and loss account)
Detailed Explanation:
The insurance premium of ₹ 12,000 covers 12 months from 1st October, 2021 to 30th September, 2022.
By 31st March, 2022, 6 months' insurance expense (October to March) has been incurred.
Therefore, ₹ 6,000 is charged as insurance expense for the current accounting year.
The remaining ₹ 6,000 is prepaid insurance and shown as an asset in the balance sheet.
The adjusting entry transfers the prepaid portion from asset to expense to correctly reflect the expense for the period.
The insurance premium of ₹ 12,000 covers 12 months from 1st October, 2021 to 30th September, 2022.
By 31st March, 2022, 6 months' insurance expense (October to March) has been incurred.
Therefore, ₹ 6,000 is charged as insurance expense for the current accounting year.
The remaining ₹ 6,000 is prepaid insurance and shown as an asset in the balance sheet.
The adjusting entry transfers the prepaid portion from asset to expense to correctly reflect the expense for the period.
PYQ 2
CBSE
2012
Why does Straight Line Method not take into account the varying usage of assets?
Solution:
Because it assumes the asset provides equal utility and wears out uniformly over its useful life, ignoring actual usage variations.
Detailed Explanation:
The Straight Line Method is based on the assumption that the asset's utility and wear and tear are consistent each year.
It does not consider that some years the asset may be used more intensively leading to higher depreciation.
This limitation means it cannot reflect the actual consumption pattern of the asset, which can vary year to year.
The Straight Line Method is based on the assumption that the asset's utility and wear and tear are consistent each year.
It does not consider that some years the asset may be used more intensively leading to higher depreciation.
This limitation means it cannot reflect the actual consumption pattern of the asset, which can vary year to year.
PYQ 3
CBSE
2019
Why is amortisation necessary for intangible assets? Explain its effect on profit and loss account.
Solution:
Amortisation is necessary because intangible assets like patents have a limited useful life.
Charging amortisation spreads the cost of the asset over the period it benefits the business.
This ensures that expenses are matched with the revenues generated by the asset.
In the profit and loss account, amortisation appears as an expense.
It reduces the profit for the period but reflects the true cost of using the intangible asset.
Charging amortisation spreads the cost of the asset over the period it benefits the business.
This ensures that expenses are matched with the revenues generated by the asset.
In the profit and loss account, amortisation appears as an expense.
It reduces the profit for the period but reflects the true cost of using the intangible asset.
Detailed Explanation:
Intangible assets do not have physical substance but provide economic benefits over time.
Without amortisation, the cost of these assets would be overstated in the financial statements.
Amortisation allocates the cost systematically, ensuring fair presentation of profits.
This also helps in complying with accounting standards and provides useful information to stakeholders.
Thus, amortisation is essential for accurate financial reporting and decision making.
Intangible assets do not have physical substance but provide economic benefits over time.
Without amortisation, the cost of these assets would be overstated in the financial statements.
Amortisation allocates the cost systematically, ensuring fair presentation of profits.
This also helps in complying with accounting standards and provides useful information to stakeholders.
Thus, amortisation is essential for accurate financial reporting and decision making.
PYQ 4
CBSE
2019
Define 'Commission on Profit'. How is it calculated? Give one example.
Solution:
Commission on Profit is the amount paid to a manager or agent as a percentage of the net profit earned by the business.
It is calculated either on the net profit before charging commission or on the net profit after charging commission.
Example: If the net profit before commission is ₹ 1,00,000 and the commission rate is 10% on net profit before commission, then commission = 10% of ₹ 1,00,000 = ₹ 10,000.
It is calculated either on the net profit before charging commission or on the net profit after charging commission.
Example: If the net profit before commission is ₹ 1,00,000 and the commission rate is 10% on net profit before commission, then commission = 10% of ₹ 1,00,000 = ₹ 10,000.
Detailed Explanation:
Commission on Profit is a common way to reward managers based on the profitability of the business.
It motivates managers to increase profits.
The calculation depends on whether the commission is on profit before or after charging commission.
In the example, the commission is simply 10% of the profit before commission, which is straightforward to calculate.
Commission on Profit is a common way to reward managers based on the profitability of the business.
It motivates managers to increase profits.
The calculation depends on whether the commission is on profit before or after charging commission.
In the example, the commission is simply 10% of the profit before commission, which is straightforward to calculate.
PYQ 5
CBSE
2022
An amount of ₹ 5000 was paid by cheque to a creditor. Pass necessary voucher entry and prepare the accounting voucher.
Solution:
Voucher Entry:
Debit: Creditor's Account ₹ 5,000
Credit: Bank Account ₹ 5,000
Accounting Voucher:
Name of Firm : [Your Firm's Name]
Voucher No : [Number]
Date : [Date]
Debit Account : Creditor's Account
Amount : ₹ 5,000
Credit Account : Bank Account
Amount : ₹ 5,000
Narration : Payment of ₹ 5,000 by cheque to creditor
Authorised By : ____________
Prepared By : ____________
Debit: Creditor's Account ₹ 5,000
Credit: Bank Account ₹ 5,000
Accounting Voucher:
Name of Firm : [Your Firm's Name]
Voucher No : [Number]
Date : [Date]
Debit Account : Creditor's Account
Amount : ₹ 5,000
Credit Account : Bank Account
Amount : ₹ 5,000
Narration : Payment of ₹ 5,000 by cheque to creditor
Authorised By : ____________
Prepared By : ____________
Detailed Explanation:
This question requires passing a voucher entry and preparing the corresponding voucher.
Teachers emphasize understanding the double entry system: payment to creditor reduces liability (debit creditor) and reduces bank balance (credit bank).
Preparing the voucher consolidates learning of transaction recording and voucher preparation.
This question requires passing a voucher entry and preparing the corresponding voucher.
Teachers emphasize understanding the double entry system: payment to creditor reduces liability (debit creditor) and reduces bank balance (credit bank).
Preparing the voucher consolidates learning of transaction recording and voucher preparation.
PYQ 6
CBSE
2020
Fill in the blanks:
(a) Fixed assets are shown on the ________ side of the balance sheet.
(b) The owner’s claim is represented by ________ in the balance sheet.
Solution:
(a) Asset
(b) Capital
(b) Capital
Detailed Explanation:
Fixed assets like land, building, and machinery are resources owned by the business, so they appear on the asset side.
The owner's claim on the business is represented by capital, which is shown on the liability side as it is a claim against the assets.
These are fundamental concepts in understanding balance sheets.
Fixed assets like land, building, and machinery are resources owned by the business, so they appear on the asset side.
The owner's claim on the business is represented by capital, which is shown on the liability side as it is a claim against the assets.
These are fundamental concepts in understanding balance sheets.
PYQ 7
CBSE
2018
Explain why reserves are considered a source of internal financing for a company.
Solution:
Reserves are created by retaining a portion of profits within the company.
They represent accumulated earnings that are not distributed as dividends.
These funds can be used for expansion, meeting contingencies, or redeeming liabilities.
Since reserves are generated internally from business operations, they do not require external borrowing.
Using reserves avoids interest costs and dilution of ownership.
Hence, reserves serve as an important source of internal financing.
They represent accumulated earnings that are not distributed as dividends.
These funds can be used for expansion, meeting contingencies, or redeeming liabilities.
Since reserves are generated internally from business operations, they do not require external borrowing.
Using reserves avoids interest costs and dilution of ownership.
Hence, reserves serve as an important source of internal financing.
Detailed Explanation:
Reserves come from profits earned and retained in the business.
They provide funds without needing to raise capital from outside sources.
This internal source reduces dependency on loans or equity issues.
It helps maintain control and reduces financial costs.
Therefore, reserves are a cost-effective and readily available source of finance for companies.
Reserves come from profits earned and retained in the business.
They provide funds without needing to raise capital from outside sources.
This internal source reduces dependency on loans or equity issues.
It helps maintain control and reduces financial costs.
Therefore, reserves are a cost-effective and readily available source of finance for companies.
PYQ 8
CBSE
2020
Fill in the blanks: 'Amortisation relates to _______ assets and is charged to the ________ account each year.'
Solution:
intangible, profit and loss
Detailed Explanation:
Amortisation is the process of writing off the cost of intangible assets like patents, copyrights, and trademarks.
It is charged as an expense in the profit and loss account annually.
This helps in matching the cost of the intangible asset with the income it helps to generate.
Amortisation is the process of writing off the cost of intangible assets like patents, copyrights, and trademarks.
It is charged as an expense in the profit and loss account annually.
This helps in matching the cost of the intangible asset with the income it helps to generate.
PYQ 9
CBSE
2000
Calculate interest on capital ₹ 75,000 at 6% p.a. introduced on 1st July for the financial year ended 31st March.
Solution:
Step 1 Calculate the number of months capital was used from 1st July to 31st March which is 9 months
Step 2 Calculate interest using formula \( \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \)
\( \text{Principal} = \text{₹}\ 75,000 \) \( \text{Rate} = 6\% \text{ p.a.} \) \( \text{Time} = \frac{9}{12} \text{ years} \)
Step 3 \( \text{Interest} = 75,000 \times \frac{6}{100} \times \frac{9}{12} = \text{₹} 3,375 \)
Step 2 Calculate interest using formula \( \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \)
\( \text{Principal} = \text{₹}\ 75,000 \) \( \text{Rate} = 6\% \text{ p.a.} \) \( \text{Time} = \frac{9}{12} \text{ years} \)
Step 3 \( \text{Interest} = 75,000 \times \frac{6}{100} \times \frac{9}{12} = \text{₹} 3,375 \)
Detailed Explanation:
Interest on capital is calculated on the amount of capital introduced for the period it is used in the business.
Here capital was introduced on 1st July and the financial year ends on 31st March so interest is calculated for 9 months.
Using the formula \( \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \), we substitute the values and calculate the interest.
This method helps in fairly compensating the partner for the use of their capital in the business.
Interest on capital is calculated on the amount of capital introduced for the period it is used in the business.
Here capital was introduced on 1st July and the financial year ends on 31st March so interest is calculated for 9 months.
Using the formula \( \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \), we substitute the values and calculate the interest.
This method helps in fairly compensating the partner for the use of their capital in the business.
PYQ 10
CBSE
2019
A business has debtors of ₹ 1,00,000. It creates a provision for doubtful debts @ 5%. Calculate the amount of provision and the value at which debtors should be shown in the balance sheet.
Solution:
Step 1 Calculate the provision for doubtful debts as 5% of ₹ 1,00,000 which is ₹ 5,000
Step 2 Deduct the provision from the total debtors to find the net value to be shown in the balance sheet
Net debtors = ₹ 1,00,000 - ₹ 5,000 = ₹ 95,000
Therefore the provision amount is ₹ 5,000 and the debtors should be shown at ₹ 95,000 in the balance sheet
Step 2 Deduct the provision from the total debtors to find the net value to be shown in the balance sheet
Net debtors = ₹ 1,00,000 - ₹ 5,000 = ₹ 95,000
Therefore the provision amount is ₹ 5,000 and the debtors should be shown at ₹ 95,000 in the balance sheet
Detailed Explanation:
Provision for doubtful debts is an estimate of the amount that may not be collected from debtors. It is calculated as a percentage of total debtors. Here 5% of ₹ 1,00,000 gives ₹ 5,000 which is the provision amount. The balance sheet shows debtors net of this provision to reflect a realistic value of receivables. This ensures that assets are not overstated and follows the conservatism principle.
Provision for doubtful debts is an estimate of the amount that may not be collected from debtors. It is calculated as a percentage of total debtors. Here 5% of ₹ 1,00,000 gives ₹ 5,000 which is the provision amount. The balance sheet shows debtors net of this provision to reflect a realistic value of receivables. This ensures that assets are not overstated and follows the conservatism principle.
PYQ 11
CBSE
2022
Journalise the following transactions related to bad debts: Bad debts of ₹5,000 were written off during the year.
Solution:
Bad debts A/c Dr. 5,000
To Debtors A/c 5,000
To Debtors A/c 5,000
Detailed Explanation:
When bad debts are written off, the business recognizes the loss by debiting the bad debts account (an expense) and crediting the debtors account to reduce the amount receivable. This entry ensures that the accounts reflect the actual collectible amount.
When bad debts are written off, the business recognizes the loss by debiting the bad debts account (an expense) and crediting the debtors account to reduce the amount receivable. This entry ensures that the accounts reflect the actual collectible amount.
PYQ 12
CBSE
2015
Assertion (A): Trial Balance helps in preparing financial statements.
Reason (R): Trial Balance contains all debit and credit balances of ledger accounts.
Choose the correct option:
(a) Both A and R are true and R is the correct explanation of A
(b) Both A and R are true but R is not the correct explanation of A
(c) A is true but R is false
(d) A is false but R is true
Solution:
Option (a) Both A and R are true and R is the correct explanation of A
Detailed Explanation:
The trial balance lists all debit and credit balances from ledger accounts.
This comprehensive listing serves as the basis for preparing financial statements like the Profit and Loss Account and Balance Sheet.
Therefore, the reason correctly explains why the assertion is true.
Hence, option (a) is correct.
The trial balance lists all debit and credit balances from ledger accounts.
This comprehensive listing serves as the basis for preparing financial statements like the Profit and Loss Account and Balance Sheet.
Therefore, the reason correctly explains why the assertion is true.
Hence, option (a) is correct.
PYQ 13
CBSE
2006
The Opening Stock of a business is \( \text{₹}1,00,000 \) and Closing Stock is \( \text{₹}1,20,000 \). Purchases are \( \text{₹}4,00,000 \) and Sales are \( \text{₹}5,00,000 \). Calculate Gross Profit if direct expenses are \( \text{₹}40,000 \).
Solution:
Step 1 Calculate Cost of Goods Sold (COGS):
COGS = \( \text{Opening Stock} + \text{Purchases} + \text{Direct Expenses} - \text{Closing Stock} \)
= \( \text{₹}1,00,000 + \text{₹}4,00,000 + \text{₹}40,000 - \text{₹}1,20,000 \)
= \( \text{₹}4,20,000 \)
Step 2 Calculate Gross Profit:
Gross Profit = \( \text{Sales} - \text{COGS} \)
= \( \text{₹}5,00,000 - \text{₹}4,20,000 \)
= \( \text{₹}80,000 \)
COGS = \( \text{Opening Stock} + \text{Purchases} + \text{Direct Expenses} - \text{Closing Stock} \)
= \( \text{₹}1,00,000 + \text{₹}4,00,000 + \text{₹}40,000 - \text{₹}1,20,000 \)
= \( \text{₹}4,20,000 \)
Step 2 Calculate Gross Profit:
Gross Profit = \( \text{Sales} - \text{COGS} \)
= \( \text{₹}5,00,000 - \text{₹}4,20,000 \)
= \( \text{₹}80,000 \)
Detailed Explanation:
Gross Profit is the difference between sales and the cost of goods sold. To find COGS, we add opening stock, purchases, and direct expenses, then subtract closing stock. This gives the actual cost of goods sold during the period. Subtracting COGS from sales gives the gross profit, which shows how much profit was made from core business activities before indirect expenses are considered.
Gross Profit is the difference between sales and the cost of goods sold. To find COGS, we add opening stock, purchases, and direct expenses, then subtract closing stock. This gives the actual cost of goods sold during the period. Subtracting COGS from sales gives the gross profit, which shows how much profit was made from core business activities before indirect expenses are considered.
PYQ 14
CBSE
2021
Explain with journal entries the treatment of repairs and maintenance expenses incurred on machinery.
Solution:
Journal entry for repairs and maintenance expenses:
Repairs and Maintenance A/c Dr.
To Bank/Cash A/c
(Being repairs and maintenance expenses paid for machinery)
Repairs and Maintenance A/c Dr.
To Bank/Cash A/c
(Being repairs and maintenance expenses paid for machinery)
Detailed Explanation:
Repairs and maintenance expenses are treated as revenue expenditure.
They are debited to the Repairs and Maintenance account to record the cost incurred.
The corresponding credit is to Bank or Cash account depending on payment mode.
This treatment ensures that such expenses are charged to the profit and loss account and do not affect the asset's book value.
Repairs and maintenance expenses are treated as revenue expenditure.
They are debited to the Repairs and Maintenance account to record the cost incurred.
The corresponding credit is to Bank or Cash account depending on payment mode.
This treatment ensures that such expenses are charged to the profit and loss account and do not affect the asset's book value.
PYQ 15
CBSE
2020
What is the purpose of preparing a trial balance? List any four errors which can be detected by it.
Solution:
Purpose of preparing trial balance:
1. To check the arithmetical accuracy of ledger accounts.
2. To ensure that total debits equal total credits.
3. To help in the preparation of final accounts.
4. To detect errors in recording transactions.
Four errors detected by trial balance:
(i) Error of omission of both debit and credit entries.
(ii) Error of commission such as wrong posting.
(iii) Error of principle affecting ledger accounts.
(iv) Error of casting or balancing in ledger accounts.
1. To check the arithmetical accuracy of ledger accounts.
2. To ensure that total debits equal total credits.
3. To help in the preparation of final accounts.
4. To detect errors in recording transactions.
Four errors detected by trial balance:
(i) Error of omission of both debit and credit entries.
(ii) Error of commission such as wrong posting.
(iii) Error of principle affecting ledger accounts.
(iv) Error of casting or balancing in ledger accounts.
Detailed Explanation:
Trial balance is a statement prepared to verify the equality of debit and credit balances.
It helps in detecting errors that affect the equality of totals.
Teachers can explain the purpose by linking it to the accounting cycle and error detection.
Listing errors detected helps students understand the types of mistakes caught early in accounting.
Trial balance is a statement prepared to verify the equality of debit and credit balances.
It helps in detecting errors that affect the equality of totals.
Teachers can explain the purpose by linking it to the accounting cycle and error detection.
Listing errors detected helps students understand the types of mistakes caught early in accounting.
PYQ 16
CBSE
2020
Distinguish between accounting standards and accounting policies with examples.
Solution:
Accounting Standards are written statements issued by a regulatory body like ICAI that provide uniform rules and guidelines for preparing financial statements. They ensure consistency and comparability across different enterprises. For example, Accounting Standard 6 deals with Depreciation Accounting.
Accounting Policies are specific principles, bases, conventions, rules and practices applied by an enterprise in preparing and presenting financial statements. These may vary between companies. For example, a company may choose to value inventory using FIFO or Weighted Average method as its accounting policy.
Accounting Policies are specific principles, bases, conventions, rules and practices applied by an enterprise in preparing and presenting financial statements. These may vary between companies. For example, a company may choose to value inventory using FIFO or Weighted Average method as its accounting policy.
Detailed Explanation:
Accounting Standards are authoritative guidelines issued by professional bodies to standardize accounting practices across all companies, ensuring uniformity and comparability of financial statements.
Accounting Policies are the specific methods and principles adopted by an individual company within the framework of accounting standards to prepare its financial statements.
For example, while Accounting Standard 6 mandates depreciation accounting, a company decides the method of depreciation (straight line or reducing balance) as its accounting policy.
This distinction helps students understand the difference between general rules and company-specific choices in accounting.
Accounting Standards are authoritative guidelines issued by professional bodies to standardize accounting practices across all companies, ensuring uniformity and comparability of financial statements.
Accounting Policies are the specific methods and principles adopted by an individual company within the framework of accounting standards to prepare its financial statements.
For example, while Accounting Standard 6 mandates depreciation accounting, a company decides the method of depreciation (straight line or reducing balance) as its accounting policy.
This distinction helps students understand the difference between general rules and company-specific choices in accounting.
PYQ 17
CBSE
2019
Explain how revenue recognition timing affects financial statements of a business.
Solution:
Revenue recognition timing determines the period in which revenue is recorded in the financial statements.
If revenue is recognized too early, it may overstate income and assets.
If recognized too late, it may understate profitability and financial position.
Proper timing ensures revenues are matched with related expenses, providing an accurate profit or loss.
This affects the balance sheet by influencing receivables and equity, and the income statement by affecting reported revenues and profits.
If revenue is recognized too early, it may overstate income and assets.
If recognized too late, it may understate profitability and financial position.
Proper timing ensures revenues are matched with related expenses, providing an accurate profit or loss.
This affects the balance sheet by influencing receivables and equity, and the income statement by affecting reported revenues and profits.
Detailed Explanation:
Revenue recognition timing is crucial for accurate financial reporting.
Recognizing revenue when earned, not when cash is received, aligns with the accrual basis.
This ensures that financial statements reflect the true performance and position of the business.
Teachers would highlight that incorrect timing can mislead stakeholders about profitability and financial health.
Revenue recognition timing is crucial for accurate financial reporting.
Recognizing revenue when earned, not when cash is received, aligns with the accrual basis.
This ensures that financial statements reflect the true performance and position of the business.
Teachers would highlight that incorrect timing can mislead stakeholders about profitability and financial health.
PYQ 18
CBSE
2023
State the effect of the following items on the Bank Reconciliation Statement: (i) Cheques issued but not presented for payment (ii) Cheques paid into bank but not yet collected
Solution:
(i) Cheques issued but not presented for payment increase the balance as per cash book but are not yet deducted in the passbook, so they are added to the passbook balance in the reconciliation.
(ii) Cheques paid into bank but not yet collected are recorded in the cash book but not yet credited by the bank, so they are deducted from the passbook balance in the reconciliation.
(ii) Cheques paid into bank but not yet collected are recorded in the cash book but not yet credited by the bank, so they are deducted from the passbook balance in the reconciliation.
Detailed Explanation:
Cheques issued but not presented for payment create a timing difference because the cash book reflects the payment immediately, but the bank has not yet debited the account.
Thus, the passbook balance is higher than the cash book balance for these amounts.
In reconciliation, these cheques are added to the passbook balance to match the cash book.
Cheques paid into the bank but not yet collected are recorded in the cash book, increasing the balance, but the bank has not yet credited these amounts.
Therefore, the passbook balance is lower, and these amounts are deducted from the passbook balance in the reconciliation statement.
Cheques issued but not presented for payment create a timing difference because the cash book reflects the payment immediately, but the bank has not yet debited the account.
Thus, the passbook balance is higher than the cash book balance for these amounts.
In reconciliation, these cheques are added to the passbook balance to match the cash book.
Cheques paid into the bank but not yet collected are recorded in the cash book, increasing the balance, but the bank has not yet credited these amounts.
Therefore, the passbook balance is lower, and these amounts are deducted from the passbook balance in the reconciliation statement.
PYQ 19
CBSE
2021
Explain the accounting treatment of loss on sale of machinery.
Solution:
Loss on sale of machinery is treated as an expense.
It is debited to the Profit and Loss Account.
The machinery account is credited with the original cost.
Accumulated depreciation on the machinery is debited.
The sale proceeds are credited.
The difference, if sale proceeds are less than the net book value (cost less accumulated depreciation), is recorded as loss.
It is debited to the Profit and Loss Account.
The machinery account is credited with the original cost.
Accumulated depreciation on the machinery is debited.
The sale proceeds are credited.
The difference, if sale proceeds are less than the net book value (cost less accumulated depreciation), is recorded as loss.
Detailed Explanation:
When machinery is sold at a loss, the loss represents an expense for the business.
The accounting entries remove the asset and its accumulated depreciation from the books.
The sale proceeds are recorded.
If the sale amount is less than the asset's book value, the difference is a loss.
This loss is shown in the Profit and Loss Account to reflect the true financial position.
When machinery is sold at a loss, the loss represents an expense for the business.
The accounting entries remove the asset and its accumulated depreciation from the books.
The sale proceeds are recorded.
If the sale amount is less than the asset's book value, the difference is a loss.
This loss is shown in the Profit and Loss Account to reflect the true financial position.
PYQ 20
CBSE
2021
Explain with examples the effect of errors on the Trial Balance.
Solution:
Errors affecting Trial Balance:
1. Errors causing Trial Balance not to agree:
• Error of omission: Transaction completely omitted.
Example: Purchase of goods not recorded.
• Error of commission: Wrong amount or account.
Example: Sales recorded twice.
• Error of principle: Wrong classification.
Example: Purchase recorded as expense.
• Error of posting: Wrong side or account.
Example: Debit posted as credit.
2. Errors not affecting Trial Balance:
• Compensating errors: Errors cancel each other.
Example: Overstating one account and understating another by same amount.
• Errors of original entry: Wrong amount entered in both debit and credit.
Example: Both debit and credit recorded as ₹ 500 instead of ₹ 50.
• Errors of reversal: Debit and credit reversed.
Example: Debit posted to credit side and vice versa.
These errors illustrate that Trial Balance agreement does not guarantee error-free accounts.
1. Errors causing Trial Balance not to agree:
• Error of omission: Transaction completely omitted.
Example: Purchase of goods not recorded.
• Error of commission: Wrong amount or account.
Example: Sales recorded twice.
• Error of principle: Wrong classification.
Example: Purchase recorded as expense.
• Error of posting: Wrong side or account.
Example: Debit posted as credit.
2. Errors not affecting Trial Balance:
• Compensating errors: Errors cancel each other.
Example: Overstating one account and understating another by same amount.
• Errors of original entry: Wrong amount entered in both debit and credit.
Example: Both debit and credit recorded as ₹ 500 instead of ₹ 50.
• Errors of reversal: Debit and credit reversed.
Example: Debit posted to credit side and vice versa.
These errors illustrate that Trial Balance agreement does not guarantee error-free accounts.
Detailed Explanation:
Errors can either cause Trial Balance to disagree or still agree despite mistakes.
Errors causing disagreement include omission, commission, posting, and principle errors.
Examples help students identify how these errors affect ledger balances.
Errors not affecting Trial Balance include compensating errors, errors of original entry, and reversal errors.
Understanding these helps students realize the limitations of Trial Balance in detecting all errors.
This knowledge is crucial for accurate accounting and error detection.
Errors can either cause Trial Balance to disagree or still agree despite mistakes.
Errors causing disagreement include omission, commission, posting, and principle errors.
Examples help students identify how these errors affect ledger balances.
Errors not affecting Trial Balance include compensating errors, errors of original entry, and reversal errors.
Understanding these helps students realize the limitations of Trial Balance in detecting all errors.
This knowledge is crucial for accurate accounting and error detection.
