Question

a) The fact that your trial balance agree does not mean that there are no errors. Discuss

b) Accounting equation is the basis for the preparation of statement of financial position in accordance to IFRS financial statement presentation. Explain

c) Explain double entry in accounting and relate it to any accounting concept.

Answer 1

Solution (a)

Near agreement of trial balance does not mean that there are no errors. There are some errors which are not disclosed by trial balance. Such errors are called compensating errors. Compensating errors are those which are nullified by the impact of another error. The effect of one error is nullified by the effect of another error. For example expenses amounting to rupees 6000 wrongly recorded at rupees 8000 while another expense amounting to rupees 2000 not recorded at all.

Solution (b)

Assets will be equals to liabilities and stockholders equity combined. For example if the cash is invested by the owners then there will be an increase in assets as the cash will increase and there will be increase in the the liabilities asset the stockholders equity will increase. Another example is suppose there is a payment to the the creditors so there will be decrease in cash as well as decrease in creditors so assets and liabilities get matched.

Solution (c)

The accounting equation is assets = liabilities + stockholders equity. Assets will be equals to liabilities and stockholders equity combined. For example if the cash is is invested by the owners then there will be an increase in assets as the cash will increase and there will be increase in the the liabilities asse the stockholders equity will increase. Another example is suppose there is a payment to the the creditors so there will be decrease in cash as well as decrease in creditors so assets and liabilities get matched.

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