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Difficulty: HardBalancing Ledger Accounts and Extracting Trial Balance

Kwara Merchants prepared its ledger accounts and extracted a trial balance that initially balanced. During an audit, the following errors in extraction and placement were discovered:

1. Discount Allowed of ₦8,000\text{₦}8,000 was entered on the credit side of the trial balance instead of the debit side.
2. Discount Received total of ₦12,000\text{₦}12,000 was completely omitted from the trial balance.
3. Returns Inwards of ₦15,000\text{₦}15,000 was posted to the credit side of the trial balance instead of the debit side.

What is the net discrepancy in the trial balance, and which column will have the higher total?

  1. Credit total exceeds Debit total by ₦34,000\text{₦}34,000Answer
  2. B
    Credit total exceeds Debit total by ₦11,000\text{₦}11,000
  3. C
    Debit total exceeds Credit total by ₦26,000\text{₦}26,000
  4. D
    Credit total exceeds Debit total by ₦58,000\text{₦}58,000

Answer

Credit total exceeds Debit total by ₦34,000\text{₦}34,000
The correct answer accounts for both the double effect of side-placement errors and the single effect of an omission. Placing Discount Allowed (debit ₦8,000\text{₦}8,000) on the credit side causes a ₦16,000\text{₦}16,000 credit excess. Omitting Discount Received (credit ₦12,000\text{₦}12,000) decreases credit total by ₦12,000\text{₦}12,000. Placing Returns Inwards (debit ₦15,000\text{₦}15,000) on the credit side causes a ₦30,000\text{₦}30,000 credit excess. Combining these gives a net credit excess of ₦34,000\text{₦}34,000.

Step-by-Step Solution

1
Calculate the effect of posting Discount Allowed (debit item of ₦8,000\text{₦}8,000) to the credit side.
Debit total is understated by ₦8,000\text{₦}8,000 and Credit total is overstated by ₦8,000\text{₦}8,000, resulting in a net credit excess of 2×₦8,000=₦16,0002 \times \text{₦}8,000 = \text{₦}16,000.
Placing a debit item on the credit side creates a double error magnitude on the trial balance discrepancy.
2
Calculate the effect of omitting Discount Received (credit item of ₦12,000\text{₦}12,000).
Credit total is understated by ₦12,000\text{₦}12,000, which reduces the credit excess by ₦12,000\text{₦}12,000.
Complete omission of a credit item reduces the credit side total by its face value.
3
Calculate the effect of posting Returns Inwards (debit item of ₦15,000\text{₦}15,000) to the credit side.
Debit total is understated by ₦15,000\text{₦}15,000 and Credit total is overstated by ₦15,000\text{₦}15,000, resulting in a net credit excess of 2×₦15,000=₦30,0002 \times \text{₦}15,000 = \text{₦}30,000.
Returns Inwards is a debit balance item; misplacing it on the credit side doubles the discrepancy effect.
4
Sum up the net effects to determine the overall trial balance discrepancy.
Net Credit Excess = ₦16,000−₦12,000+₦30,000=₦34,000\text{₦}16,000 - \text{₦}12,000 + \text{₦}30,000 = \text{₦}34,000.
Combining all individual error effects gives the overall imbalance between debit and credit totals.

Key Concept

Impact of Trial Balance Extraction Errors on Debit and Credit Discrepancies
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Topics

Balancing Ledger Accounts and Extracting Trial Balance

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