Chapter 5: Trial Balance, Rectification of Errors and Adjusting And Closing Entries (JAIIB – Paper 3)
1. A Trial Balance is prepared to:
A. Detect all types of errors in accounts
B. Prepare the Profit and Loss Account directly
C. Check the arithmetical accuracy of ledger postings
D. Avoid the need for rectification entries
A Trial Balance is prepared to ensure total debits equal total credits, thus checking arithmetical accuracy of ledger accounts.
2. Which of the following is NOT a feature of a Trial Balance?
A. It shows the financial position of the business
B. It is prepared at a particular date
C. It contains balances of ledger accounts
D. It helps in preparation of final accounts
A Trial Balance does not show financial position; it is only a list of debit and credit balances from ledger accounts.
3. If the debit and credit sides of a Trial Balance do not agree, the difference is temporarily transferred to:
A. Suspense A/c
B. Profit & Loss A/c
C. Adjustment A/c
D. Suspense A/c
A Suspense Account is used temporarily to balance a Trial Balance until the errors are located and rectified.
4. Which of the following errors will NOT affect the agreement of a Trial Balance?
A. Wrong totaling of a subsidiary book
B. Error of complete omission
C. Posting ₹500 as ₹50
D. Entering debit balance as credit balance
Errors of omission (entire transaction not recorded) do not affect the Trial Balance because both debit and credit are missing.
5. The main purpose of preparing a Trial Balance is to:
A. Rectify errors in the books of accounts
B. Show the profitability of the business
C. Ensure mathematical accuracy of ledger balances
D. Replace the need for final accounts
The primary purpose of a Trial Balance is to check the mathematical accuracy of debit and credit entries in the ledger.
6. Which of the following is NOT a type of Trial Balance?
A. Totals Method Trial Balance
B. Balances Method Trial Balance
C. Totals-cum-Balances Method Trial Balance
D. Journal Method Trial Balance
The three types of Trial Balance are Totals Method, Balances Method, and Totals-cum-Balances Method. "Journal Method" is not a valid type.
7. In which method of Trial Balance preparation are only the debit or credit balances of ledger accounts shown?
A. Totals Method
B. Balances Method
C. Totals-cum-Balances Method
D. None of the above
In the Balances Method, only the net debit or credit balances of each ledger account are transferred to the Trial Balance.
8. Which of the following is the most commonly used type of Trial Balance in practice?
A. Balances Method
B. Totals Method
C. Totals-cum-Balances Method
D. Statement Method
The Balances Method is most widely used since it directly helps in preparation of Final Accounts.
9. While preparing a Trial Balance using the Totals Method, which figures are recorded?
A. Only closing balances of accounts
B. Net balances after adjustments
C. Total of debits and credits from each ledger account
D. Only personal accounts balances
In the Totals Method, the total debit and total credit entries from each ledger account are posted to the Trial Balance.
10. Which of the following may cause disagreement of a Trial Balance?
A. Error of complete omission
B. Compensating errors
C. Error of principle
D. Posting ₹500 on debit side instead of ₹50
If wrong amounts are posted to one side (e.g., ₹500 instead of ₹50), debit and credit totals will mismatch, leading to disagreement of the Trial Balance.
11. When a Trial Balance disagrees, the difference is placed in:
A. Capital A/c
B. Suspense A/c
C. Cash Book
D. Trading A/c
Suspense Account is used to temporarily balance the Trial Balance until the errors causing disagreement are found and rectified.
12. An error of principle occurs when:
A. Transaction is completely omitted
B. Amount is posted in wrong account but correct side
C. Accounting treatment violates accounting principles
D. Same transaction is recorded twice
Error of principle arises when correct amount is recorded but the basic accounting principle is violated, e.g., treating capital expenditure as revenue.
13. If a purchase of ₹2,000 is recorded as ₹200, it is an example of:
A. Error of commission
B. Error of omission
C. Compensating error
D. Error of principle
Wrong recording of figures (₹200 instead of ₹2,000) is an error of commission, i.e., clerical or posting mistake.
14. Which error will NOT affect the agreement of a Trial Balance?
A. Posting ₹500 on debit side instead of credit side
B. Error of complete omission
C. Wrong totaling of Cash Book
D. Entering debit balance as credit balance
If a transaction is completely omitted, both debit and credit sides are missing, so the Trial Balance will still agree.
15. Which of the following methods helps in locating errors in a Trial Balance?
A. Checking the totals of subsidiary books
B. Comparing trial balance with previous year
C. Verifying posting and balances
D. All of the above
Errors can be located by verifying postings, totals of books, balances, and cross-checking figures.
16. If sales are understated by ₹1,000, the rectification entry will be:
A. Debit Suspense A/c ₹1,000, Credit Sales A/c ₹1,000
B. Debit Sales A/c ₹1,000, Credit Suspense A/c ₹1,000
C. Debit Sales A/c ₹1,000, Credit Purchases A/c ₹1,000
D. Debit Debtors A/c ₹1,000, Credit Suspense A/c ₹1,000
Understatement of sales reduces credit. To rectify, Sales A/c must be credited, and difference taken to Suspense A/c.
17. An error rectified before preparing the Trial Balance is generally corrected by:
A. Adjusting entry in Suspense A/c
B. Carrying forward to next year
C. Correcting the entry in the respective ledger account
D. Passing adjustment in Profit & Loss A/c
Errors located before preparation of the Trial Balance are corrected directly in the ledger accounts concerned.
18. If wages paid for construction of building are debited to Wages A/c, the rectification entry will be:
A. Debit Wages A/c, Credit Building A/c
B. Debit Building A/c, Credit Wages A/c
C. Debit Suspense A/c, Credit Building A/c
D. Debit Profit & Loss A/c, Credit Wages A/c
Wages for building construction are capital expenditure. The rectification is to debit Building A/c and credit Wages A/c.
19. Suspense Account is created when:
A. Trial Balance agrees
B. Adjusting entries are passed
C. Closing entries are prepared
D. Trial Balance does not tally
Suspense Account is a temporary account created to balance the Trial Balance when debit and credit totals do not match.
20. Once errors are identified, the Suspense Account is:
A. Closed by passing rectification entries
B. Carried forward to next year
C. Transferred to Profit & Loss Account
D. Kept permanently in the books
Suspense Account is temporary and must be closed once the respective errors are rectified through journal entries.
21. If errors are located after final accounts are prepared, rectification is done through:
A. Trading Account
B. Suspense Account only
C. Profit & Loss Adjustment Account
D. Capital Account
Errors found after closing books are adjusted through the Profit & Loss Adjustment Account in the next accounting year.
22. Which of the following is an example of an adjusting entry?
A. Transferring Sales to Trading A/c
B. Recording outstanding salaries at year-end
C. Closing Suspense A/c
D. Carrying forward debtors to next year
Outstanding expenses are adjusting entries made at year-end to match expenses with related revenues.
23. Closing entries are passed to:
A. Record accrued incomes
B. Adjust prepaid expenses
C. Carry balances forward to next year
D. Transfer nominal accounts to Profit & Loss A/c
Closing entries transfer balances of all nominal accounts (expenses, incomes) to Profit & Loss A/c at year-end.
24. At the end of the accounting year, the balance of Real Accounts is:
A. Carried forward to the next year
B. Transferred to Profit & Loss A/c
C. Transferred to Suspense A/c
D. Written off as expense
Real Accounts (assets, liabilities) are carried forward to the next year’s balance sheet, unlike nominal accounts.
25. Which entry is correct for closing Salary Expense A/c at year-end?
A. Debit Salary A/c, Credit Cash A/c
B. Debit Profit & Loss A/c, Credit Salary A/c
C. Debit Salary A/c, Credit Profit & Loss A/c
D. Debit Salary A/c, Credit Suspense A/c
To close an expense, Salary A/c is credited and Profit & Loss A/c is debited, transferring expense to P&L.
