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Question

As an accountant for a company, you are disappointed to learn that the totals in your new trial balance are not equal. After going through a careful analysis, you have discovered only one error. Specifically, the balance of the Office Equipment account has a debit balance of Rs. 15,600 on the trial balance. However, you have figured out that a correctly recorded credit purchase of pen drive for Rs. 3,500 was posted from the journal to the ledger with an Rs. 3,500 debit to Office Equipment and another Rs. 3,500 debit to creditor's accounts. Answer each of the following questions and present the amount of any misstatement

(a) Is the balance of the office equipment account overstated, understated or correctly stated in the trial balance?

(b) Is the balance of the creditor's account overstated, understated or correctly stated in the trial balance?

(c) Is the debit column total of the trial balance overstated, understated or correctly stated?

(d) Is the credit column total of the trial balance overstated, understated or correctly stated?

(e) If the debit column total of the trial balance is Rs. 2,40,000 before correcting the error, what is the total of credit column?


Solution

Answers for the above questions are given below

(a) From the above information, it is clear that purchase of pen drive was wrongly debited to office equipment. Due to this mistake, the balance of office equipment account is overstated by Rs. 3,500.

(b) From the above information, it seems that the creditor's account is wrongly debited with the figure of 3,500 instead being credited hence the balance of creditor's account become understated by Rs. 7,000.

(c) Just because of the compensating error, the total of the debit column of the trial balance is correctly stated.

(d) The total of the credit column of the trial balance is understated by Rs. 7,000. (Difference of creditor's account wrongly posted on the debit side of creditors).

(e) As there is no difference in debit column of trial balance, the difference in the credit column would have been reflected in the trial balance. In this, if the debit column of the trial balance is Rs. 2,40,000 the total of credit column would have been 2,33,000. (2,40,000 - 7,000; Creditor Figure).

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