Rectification of Errors
By Asok Nadhani
12.1 Errors
Errors may occur in preparation of books of account
due to mathematical mistakes, accounting principle mistakes undercast or
overcast of balance etc. These errors should be properly rectified.
12.2 Types of Errors
i)
The
Errors can be classified as:
1.
Error
of Omission
2.
Errors
of commission
3.
Errors of Principle
4.
Compensating
Errors
5.
Errors
of entering both aspects of transaction twice in the books of account
6.
Errors
of entering both aspects of transaction twice in the books of account
7.
Wrong
sum up of subsidiary books
8.
Miscellaneous
errors
ii)
Error of Omission: Such error occurs when a transaction is
omitted either wholly or partly in the books of original entry. Such error does
not affect Trial Balance.
a.
Complete
Error: When a particular
transaction is fully omitted to record in the book of original entry. Such error does
not affect the trial balance. (e.g. a credit sales of Rs.2,000 not entered in
the Sales Day Book).
b.
Partial
Error: When a particular
transaction is recorded in the book of original entry but has not been posted
in the ledger accounts. It does not affect the trial balance. (e.g. Discount
received of Rs.500 has not been credited to Discount Received A/c and has not
been debited to Supplier’s A/c.
iii) Errors
of commission: Such error
occurs when a transaction is recorded incorrectly either wholly or partly, (e.g.
wrong casting, wrong recording,
wrong posting, wrong carrying forward, wrong balancing etc.). The error of
recording does not affect the trial balance, while the error of casting and
carrying forward affect the trial balance. (e.g. a credit sale of
Rs.2, 132 was posted as Rs.2, 312).
iv)
Errors of
Principle: Errors
committed due to wrong application of the principles of Accounting, (E.g. Asset
purchased is recorded in Purchase account).
v)
Compensating Errors: When one error is
compensated by another error of opposite nature. (E.g. Purchase books and sales
books both are under cast by Rs.500).
vi)
Errors of Mis-posting: Amount posted to
a wrong ledger. It will not
disturb the agreement of the trial balance but will affect respective ledger
accounts.
vii) Errors
of entering both aspects of transaction twice in the books of account: If both aspects of transaction are entered
more than once in the books of original entry, the trial balance will still
agree but the balances of individual ledgers account will be wrong.
viii) Wrong
sum up of subsidiary books:
If the total of a subsidiary book is wrong, or wrongly carried forward. In such
case the trial balance will disagree.
ix) Miscellaneous
errors: Sometimes errors
of other nature are incurred which may or may not affect agreement of Trial Balance,
but may affect individual ledger balances.
12.3 Suspense Account
If the two sides
of trial balance do not agree after the transferring of all ledger accounts
including cash and bank account, it implies that there are certain one-sided
errors in the books of account. If errors, could not be located even after
preliminary scrutiny, the amount of difference in the trial balance is temporarily
put in an account known as “Suspense Account". If the debit side of trial
balance exceeds the credit side, the difference in the trial balance is
transferred to the credit side of the Suspense Account and vice-versa.
This is a
temporary account. When all the errors affecting the trial balance are located
and rectified the suspense account will be automatically balanced and closed.
12.4 Rectification of Errors
The errors are
rectified through passing of necessary Journal entries. The following procedure
may be adopted for the rectification of error.
Step 1 – Write the correct entry (the entry that should have been passed in the
books)
Step 2 - Write the wrong entry (the entry that have
already been passed in the books)
Step
3 - Pass the required journal entries to arrive the
correct entry as in Step 1 and cancel the wrong entry as in Step 2.
12.5 Rectification of Errors at Different Level
Rectification can be done in
any of the following levels.
1. Before the
preparation of Trial Balance
2. After the
preparation of Trial Balance but before the preparation of Final Accounts
3. After the
preparation of Final Accounts
12.5.1
Rectification of
error before the preparation of Trial Balance
This type of error may be
either one-sided error or two-sided.
i) To rectify one-sided
error, journal entry can not passed. Only the relevant ledgers are either
debited or credited.
ii) To rectify
two-sided error suitable journal entry is passed.
12.5.2
Rectification of error
after the preparation of Trial Balance but before the preparation of Final
Accounts
This type of error may be
either one-sided error or two-sided error.
i) To rectify one-sided
error, journal entry is passed via Suspense Account.
ii) To rectify
two-sided error, suitable journal entry is passed.
12.5.3
Rectification of
error after the preparation of Final Accounts
i) To rectify one-sided
error, journal entry is passed via Suspense Account.
ii) In case of
two-side error, As Final A/c s prepared, all Nominal Accounts are closed by
transferring to Trading and Profit & Loss Account. Real and Personals
Accounts are carried forward in the next accounting year.
Suspense A/c, if
any, is carried forward in the next accounting year. If it has debit balance,
it will appear in the Balance Sheet under current assets, if it has credit
balance, it will appear in the Balance Sheet under current liabilities.
Errors are
rectified in same way as explained above. However, Errors in Nominal Accounts
are rectified by the “Profit & Loss Adjustment Account”.
Note: If error occurs while journalizing
transactions, such error are usually two-sided errors, while posting entries,
such are usually one-sided errors.
Rectification of Error before the preparation of Trial
Balance
Example: 1:
Purchase Day Book is
cast of Rs.1,000 in place of Rs.1,500.
Sales Day Book is
cast of Rs.2,000 in place of Rs.1,700.
Return outward book
is under cast by Rs.500.
Solution:
1st case: Purchase book is under cast by Rs.500. To rectify
the error purchase account will be debited by Rs.500.
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Dr.
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Purchase Account
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Cr.
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|||
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Date
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Particulars
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Rs.
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Date
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Particulars
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Rs.
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To Creditors
To Under cast in
Purchase Book
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1,000
500
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2nd case: Sales Book is overcast by Rs.300. To rectify the
error sales account will be debited by Rs.300.
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Dr.
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Sales Account
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Cr.
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|||
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Date
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Particulars
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Rs.
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Date
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Particulars
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Rs.
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To Overcast in Sales book
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300
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By Debtors
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2,000
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3rd
case: To rectify the error Return outward account will be credited further by
Rs.500.
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Dr.
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Return
outward Account
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Cr.
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|||
|
Date
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Particulars
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Rs.
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Date
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Particulars
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Rs.
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By Under cast in Return Outward book
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500
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Example: 2
Rectify the
following Entries and classify the errors.
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Transactions
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1. Credit Sales of Rs.780 of Ajit was
recorded as Rs.870.
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2. Credit sales of Rs.780 to Raj was entered
in the purchase book
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3. Credit Sales of Rs.320 to Das was recorded
as sales to Basu of Rs.230
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4. An installation charge of Plant of Rs.500
has been debited to Repair Account.
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5. Rs.800 spent on newly purchased car as
registration charges debited to Misc. Expenses Account.
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6. Rs.500 paid as wages to bring furniture
debited to wags account.
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7. Rs.300 withdrawn for office uses has been
debited to Drawings account.
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8. Furniture for office purchased has been
entered in Purchase Book of Rs.750
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9. A sport equipment was purchased for Rs.250
has been debited to General Expenses A/c.
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10. Rs.200 received from Ram against a debt
previously written off has been credited to his account.
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11. A cash sale of Rs.580 has not been entered
in the books.
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Solution
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Correct Entry
|
Wrong entry i.e.
recorded entry
|
Rectified Entry
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|||||||
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1. Ajit A/c
To Sales A/c
|
Dr.780
|
780
|
Ajit A/c
To Sales A/c
|
Dr.870
|
870
|
Sales A/c
To Ajit A/c
|
Dr.90
|
90
|
|
|
2. Raj A/c
To Sales A/c
|
Dr.780
|
780
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Purchase A/c
To Raj A/c
|
Dr.780
|
780
|
Raj A/c
To Purchase A/c
To Sales A/c
|
Dr.1,560
|
780
780
|
|
|
3. Das A/c
To Sales A/c
|
Dr.320
|
320
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Basu A/c
To Sales A/c
|
Dr.230
|
230
|
Das A/c
To Sales A/c
To Basu A/c
|
Dr.320
|
90
230
|
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|
The above three
examples are Error of Commission/ error of recording.
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||||
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4. Plant A/c
To Cash A/c
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Dr.500
|
500
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Repair A/c
To Cash A/c
|
Dr.500
|
500
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Plant A/c
To Repair A/c
|
Dr.500
|
500
|
|
|
5. Car A/c
To Cash A/c
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Dr.800
|
800
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Misc.Exp.A/c
To Cash A/c
|
Dr.800
|
800
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Car A/c
To Misc.Exp A/c
|
Dr.800
|
800
|
|
|
6. Furniture A/c
To Cash A/c
|
Dr.500
|
500
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Wages A/c
To Cash A/c
|
Dr.500
|
500
|
Furniture A/c
To Wages A/c
|
Dr.500
|
500
|
|
|
7. Cash A/c
To Bank A/c
|
Dr.300
|
300
|
Drawing A/c
To Bank A/c
|
Dr.300
|
300
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Cash A/c
To Drawing A/c
|
Dr.300
|
300
|
|
|
8. Furniture A/c
To Cash A/c
|
Dr.750
|
750
|
Purchase A/c
To Cash A/c
|
Dr.750
|
750
|
Furniture A/c
To Purchase A/c
|
Dr.750
|
750
|
|
|
9. Drawing A/c
To Cash A/c
|
Dr.250
|
250
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Gen. Exp.A/c
To Cash A/c
|
Dr.250
|
250
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Drawing A/c
To Gen.Exp A/c
|
Dr.250
|
250
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|
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10. Cash A/c
To Bad Debt Recovery A/c
|
Dr.200
|
200
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Cash A/c
To Ram A/c
|
Dr.200
|
200
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Ram A/c
To Bad Debt Recovery A/c
|
Dr.200
|
200
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The above
examples are Error of Principle.
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11. Cash A/c
To Sales A/c
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Dr.580
|
580
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Nil
|
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Cash A/c
To Sales A/c
|
Dr.580
|
580
|
|
|
The above example
is Error of Omission
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|
||||||||
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Correct Entry
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Wrong entry i.e. recorded entry
|
Reverse of wrong entry
|
Rectified Entry
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1.
Ajit A/c
To Sales
A/c
|
Dr.780
|
780
|
Ajit A/c
To Sales A/c
|
Dr.870
|
870
|
Sales
A/c
To Ajit A/c
|
Dr.870
|
870
|
Sales
A/c
To Ajit A/c
|
Dr.90
|
90
|
|||||||||||
|
2.
Raj A/c
To Sales
A/c
|
Dr.780
|
780
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Purchase A/c
To Raj A/c
|
Dr.780
|
780
|
Raj
A/c
To Purchase A/c
|
Dr.780
|
780
|
Raj
A/c
To Purchase A/c
To Sales A/c
|
Dr.1,560
|
780
780
|
|||||||||||
|
3.
Das A/c
To Sales
A/c
|
Dr.320
|
320
|
Basu A/c
To Sales A/c
|
Dr.230
|
230
|
Sales
A/c
To Basu A/c
|
Dr.230
|
230
|
Das
A/c
To Sales A/c
To Basu A/c
|
Dr.320
|
90
230
|
|||||||||||
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The above three examples are Error of
Commission/ error of recording.
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|
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4.
Plant A/c
To Cash
A/c
|
Dr.500
|
500
|
Repair A/c
To Cash A/c
|
Dr.500
|
500
|
Cash A/c
To Repair A/c
|
Dr.500
|
500
|
Plant
A/c
To Repair A/c
|
Dr.500
|
500
|
|||||||||||
|
5.
Car A/c
To
Cash A/c
|
Dr.800
|
800
|
Misc.Exp.A/c
To Cash A/c
|
Dr.800
|
800
|
Cash A/c
To Misc.Exp A/c
|
Dr.800
|
800
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Car A/c
To Misc.Exp A/c
|
Dr.800
|
800
|
|||||||||||
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6.
Furniture A/c
To
Cash A/c
|
Dr.500
|
500
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Wages A/c
To Cash A/c
|
Dr.500
|
500
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Cash A/c
To Wages A/c
|
Dr.500
|
500
|
Furniture A/c
To Wages A/c
|
Dr.500
|
500
|
|||||||||||
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7.
Cash A/c
To
Bank A/c
|
Dr.300
|
300
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Drawing A/c
To Bank A/c
|
Dr.300
|
300
|
Bank A/c
To Drawing A/c
|
Dr.300
|
300
|
Cash A/c
To Drawing A/c
|
Dr.300
|
300
|
|||||||||||
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8.
Furniture A/c
To
Cash A/c
|
Dr.750
|
750
|
Purchase A/c
To Cash A/c
|
Dr.750
|
750
|
Cash A/c
To Purchase A/c
|
Dr.750
|
750
|
Furniture A/c
To Purchase A/c
|
Dr.750
|
750
|
|||||||||||
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9.
Drawing A/c
To
Cash A/c
|
Dr.250
|
250
|
Gen.Exp.A/c
To Cash A/c
|
Dr.250
|
250
|
Cash A/c
To Gen.Exp A/c
|
Dr.250
|
250
|
Drawing A/c
To Gen.Exp A/c
|
Dr.250
|
250
|
|||||||||||
|
10.
Cash A/c
To Bad Debt Recovery A/c
|
Dr.200
|
200
|
Cash A/c
To Ram A/c
|
Dr.200
|
200
|
Ram A/c
To Cash A/c
|
Dr.200
|
200
|
Ram A/c
To Bad Debt Recovery A/c
|
Dr.200
|
200
|
|||||||||||
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The above four examples are Error of
Principle.
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||||||||||||||||||
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11.
Cash A/c
To Sales A/c
|
Dr.580
|
580
|
Nil
|
|
|
|
|
|
Cash A/c
To Sales A/c
|
Dr.580
|
580
|
|||||||||||
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The
above example is Error of Omission
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||||||||||||||||||
Rectification of Error after the preparation of Trial
Balance but before the preparation of Final Account.
Example:
3
|
1.
Sales Book is overcast by Rs.200
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|
2.
Sales Book is under cast by Rs.300
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3.
Return
Inward
Book is under cast by Rs.150
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4.
Purchase book is overcast by Rs.500
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|
5.
Return
Outward
book is under cast by Rs.500
|
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6.
Bills
Receivable Book is under cast by Rs.250
|
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7.
Bills
Payable Book is overcast by Rs.350
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|
8.
Discount
allowed is under cast by Rs.50
|
Solution:
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Journal Entries
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Dr.
|
Cr.
|
|||
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Sl No.
|
Date
|
Particulars
|
|
L.F.
|
Rs.
|
Rs.
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|
1.
|
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Sales A/c
|
Dr.
|
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200
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To Suspense A/c
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|
200
|
|
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|
(Overcasting in sales has been rectified.)
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2.
|
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Suspense A/c
|
Dr.
|
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300
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To Sales A/c
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|
|
|
300
|
|
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|
(Under casting in sales has been
rectified.)
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3.
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Return Inward A/c
|
Dr.
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150
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To Suspense A/c
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150
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(Under casting in sales return has been
rectified.)
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4.
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Suspense A/c
|
Dr.
|
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500
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To Purchase A/c
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500
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(Over casting in purchase has been
rectified.)
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5.
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Suspense A/c
|
Dr.
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|
500
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To Return Outward A/c
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500
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(Under casting in purchase return has been
rectified.)
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6.
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Bills Receivable A/c
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Dr.
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250
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To Suspense A/c
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250
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(Under casting in bills receivable book
has been rectified.)
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7.
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Bills Payable A/c
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Dr.
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350
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To Suspense A/c
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350
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(Over casting in bills payable book has
been rectified.)
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8.
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Discount allowed A/c
|
Dr.
|
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50
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To Suspense A/c
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|
50
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(Under casting in discount has been
rectified.)
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Example:
4
|
1.
A sale of Rs.5,000 has been passed through
Purchase Day Book. The customer account had, however been correctly debited.
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2.
Closing stock as on 31st Dec.2008 of
Rs.35,570 was wrongly carried forward in the books on 1st Jan.2009
as Rs.35,750.
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3.
A sum
of Rs. 500 written off machinery has not been posted to Depreciation Account.
|
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4.
Discount allowed Rs.56 had been posted to the
credit of discount received account as Rs.65.
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5.
Travelling
Expenses of Rs.100 though entered in the Cash Book but not posted in the
ledger.
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6.
General
Expenses of Rs.24 was posted as Rs.42.
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7.
Rs.200
received from Ram has been debited to Bikram.
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Solution
|
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Journal Entries
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Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
L.F.
|
Rs.
|
Rs.
|
|
1.
|
Suspense A/c
|
Dr.
|
|
10,000
|
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|
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To Sales A/c
To Purchase A/c
|
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|
5,000
5,000
|
|
|
(The reverse entry has been made for
purchase by Rs.5,000 and sale has been correctly entered by Rs.5,000 .)
|
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2.
|
Suspense A/c [35,750-35,570]
|
Dr.
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180
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To Opening Stock A/c
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180
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(The Closing stock has been carried
forward wrongly in the next year, now rectified.)
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3.
|
Depreciation A/c
|
Dr.
|
|
500
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To Suspense A/c
|
|
|
|
500
|
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|
(Depreciation A/c has been rectified.)
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4.
|
Discount Allowed A/c
|
Dr.
|
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56
|
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Discount Received A/c
|
Dr.
|
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65
|
|
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To Suspense A/c
|
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|
|
121
|
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|
(The rectification of Discount allowed
wrongly posted in the Discount Received A/c.)
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5.
|
Travelling Expenses A/c
|
Dr.
|
|
100
|
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To Suspense A/c
|
|
|
|
100
|
|
|
(Travelling Expenses now has been
debited.)
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6.
|
Suspense A/c [42-24]
|
Dr.
|
|
18
|
|
|
|
To General Expenses A/c
|
|
|
|
18
|
|
|
(Wrong posting in General expenses has now
been rectified.)
|
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1.
|
Suspense A/c
|
Dr.
|
|
400
|
|
|
|
To Ram A/c
To Bikram A/c
|
|
|
|
200
200
|
|
|
(The receipt from Ram debited to Bikram,
now has been rectified.)
|
|
|
|
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Rectification of Error after the preparation of Final
Account
Example:
5
|
1.
A new furniture was purchased for Rs.10,000 but
charged to Office Expenses Account.
|
|
2.
A sale of Rs.6,000 to Kumar has been passed
through Purchase Day Book.
|
|
3.
A purchase of Rs.5,000 from Raj has been passed
through Sales Day Book..
|
|
4.
Closing stock was under cast byRs.650 carried
forward next year.
|
|
5.
Credit
side of discount column of the cash book Rs.180 was carried forward as Rs.18.
|
|
6.
Wages
paid for installation of machinery charged to Wages Account of Rs.500.
|
|
7.
Wages
paid of Rs.550 posted to Salaries Account .
|
|
|
Solution:
|
|
Journal Entries
|
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
|
L.F.
|
Rs.
|
Rs.
|
|
1.
|
Furniture A/c
|
Dr.
|
|
10,000
|
|
|
|
To Profit &
Loss Adjustment A/c
|
|
|
|
10,000
|
|
|
(A purchase of furniture charged to Office
Expenses now rectified.)
|
|
|
|
|
|
2.
|
Kumar A/c
|
Dr.
|
|
12,000
|
|
|
|
To Profit
& Loss Adjustment A/c
|
|
|
|
12,000
|
|
|
(The reverse entry has been made for
purchase by Rs.6,000 and sale has been correctly entered by Rs.6,000 .)
|
|
|
|
|
|
3.
|
Profit & Loss Adjustment A/c
|
Dr.
|
|
10,000
|
|
|
|
To Raj A/c
|
|
|
|
10,000
|
|
|
(The reverse entry has been made for sale by
Rs.5,000 and purchase has been correctly entered by Rs.5,000 .)
|
|
|
|
|
|
4.
|
Opening Stock A/c (Note)
|
Dr.
|
|
650
|
|
|
|
To Profit
& Loss Adjustment A/c
|
|
|
|
650
|
|
|
(The under casting of Opening stock has
been rectified.)
|
|
|
|
|
|
5.
|
Suspense A/c
|
Dr.
|
|
162
|
|
|
|
To Profit
& Loss Adjustment A/c
|
|
|
|
162
|
|
|
(Wrong posting in
discount column has now been rectified [180-18].)
|
|
|
|
|
|
6.
|
Machinery A/c
|
Dr.
|
|
500
|
|
|
|
To Profit
& Loss Adjustment A/c
|
|
|
|
500
|
|
|
(Installation of machinery charged to
wages account now has been rectified.)
|
|
|
|
|
For Q7. – As the
Final Accounts have been prepared and both the accounts are Nominal Accounts no
entry is required to be passed. In the ordinary case the entry would have been
|
Wages A/c
|
Dr.
|
550
|
|
|
To Salaries A/c
|
|
|
550
|
Note: As the previous year’s Closing Stock carried
forward as the opening stock of the new financial year.
