If the Credit side of Trial Balance is heavier, it means there is a shortage on the Debit side. The Suspense Account will have a Debit balance to balance it. Debit balances (if not expenses) are shown on the Asset side.

Treating a Capital Expenditure (Machinery) as a Revenue Expenditure (Purchase A/c) violates accounting principles. Hence, Error of Principle.

If a transaction is completely omitted (neither debited nor credited), the total debits and credits will still match, so the Trial Balance will tally despite the error.

This is a one-sided error (casting error). The trial balance won't tally, and a Suspense Account is needed to balance it until the error is fixed. The others are two-sided errors.

Compensating errors occur when one error's effect is nullified by another error (e.g., Overcasting Purchase book by 100 and Sales book by 100). The Trial Balance still tallies.

To avoid distorting the current year's profit with last year's errors, nominal account corrections are routed through the P&L Adjustment Account.

Recording in Journal/Subsidiary book but failing to post to Ledger is Partial Omission. It affects the Trial Balance agreement.

Treating a Revenue expense (Repair) as a Capital asset (Machinery) violates accounting principles. Others are Errors of Commission or Omission.

This is a double whammy. Sales Return should decrease Sales (reducing profit). Purchase (Debit) increases Cost (reducing profit). You wrongly increased Cost instead of reducing Sales. Both actions reduce profit. Wait. Sales Return (Debit). Purchase (Debit). You Debited Purchase instead of Sales Return. Debit side of Trading A/c increased by 500 (Purchase) instead of Debit side increasing by 500 (Sales Return). The effect on Gross Profit is... the same? Let's re-evaluate. Correct entry: Debit Sales Return. Wrong entry: Debit Purchase. Both reduce GP by 500. So GP is correct? No, Sales Return reduces Sales. Purchase increases Cost. Both reduce GP. If I debit Purchase for 500, GP reduces by 500. If I debit Sales Return, Sales reduces, GP reduces by 500. So the error has NO effect on GP. Wait, "Posted to debit of Purchase". Sales Return is also a debit. You put a debit in the wrong debit account. Nominal accounts affect profit. Since both accounts reduce profit, the profit remains Understated by 500 (the intended amount). But if you omitted Sales Return AND added Purchase, it's double. Here, you just swapped. So GP is correct. Let's assume the question implies "Sales Return treated as Purchase". Correct effect: -Sales. Wrong effect: +Purchase. Profit = Sales - Purchase. If Sales down 500, Profit down 500. If Purchase up 500, Profit down 500. So the effect is identical. Answer: No effect/Correct? Ah, usually these questions imply "Sales Return Omitted AND Purchase Recorded". If just misposted between two expense/revenue reduction accounts, impact is nil. Let's assume the option "Understated by 1000" is the trap and "No change" isn't there. Let's look closer. Sales Return reduces Sales. Purchase increases Purchases. Both reduce Gross Profit. So if you debit Purchase INSTEAD of Sales Return, you are still reducing GP by 500. So GP is stated correctly (relative to the error). However, if the question means "Sales Return was ignored and Purchase was recorded", then GP is understated by 500 (for the purchase) and overstated by 500 (for missing sales return)? No. Missing sales return means Sales is high -> Profit High. Recording Purchase means Cost High -> Profit Low. Net effect zero. Okay, let's change the question to something clearer. "Sales of 500 recorded as Purchase". Sales (Credit) omitted, Purchase (Debit) recorded. Profit reduces by 500 (Purchase) and reduces by 500 (Missing Sales). Total Understated by 1000. Yes, let's go with "Sales recorded as Purchase".

Debit is short. To balance the TB, we need an item on the Debit side. So, Suspense A/c is debited with ?500.

The shortage of Debit (4500 in Ram) is exactly compensated by the shortage of Credit (4500 in Shyam). The Trial Balance will still agree.

Since P&L for the previous year is closed, any nominal account correction now must go through P&L Adjustment to keep current year P&L pure.

Suspense represents errors. Until found, it remains as a real balance in the Balance Sheet.

Sales Return has a Debit balance. Overcast means the debit total is too high. To reduce it, we must Credit Sales Return. The corresponding debit goes to Suspense.

Since the nominal accounts of the previous year are closed, any adjustment affecting profit must be routed through the Profit & Loss Adjustment Account (or shown as Prior Period Items) to avoid distorting current year's operating profit.