Rectification of Errors

Purushothaman, T
PGDM-RM-022
Objectives
• Understand different types of errors

• Steps involved in locating errors

• Why Suspense account is opened

Error
• An error is an unintentional omission or
commission of accounts in the process of
recording transactions

• Errors may or may not affect T/B

• Errors not affecting T/B may affect profit or loss,

assets and liabilities
Illustrative Cases of Errors
• Wrong Entry (Credit sales of Rs. 4,360 entered
as Rs. 4,630)
• Wrong posting from subsidiary books (For
March 2010 credit purchases are Rs. 2,34,500 is
wrongly casted as Rs. 2,33,500 and posted to the
purchases account as Rs. 2,33,500)
• Wrong casting of subsidiary book
• Wrong casting of ledger balances
Types of Errors
I. Errors of Principle
II. Errors of Commission
III. Errors of Omission
IV. Compensating Errors

• Errors of Principle occur ONLY at the time of

preparing the Journal
Types of Errors
• Errors of Principle
Accounting Principle stands violated
T/B agrees
Example : Capital expenditure treated as revenue
expenditure or vice versa
• Clerical Errors
Errors of Omission, Commission and
Compensating errors
Clerical Errors
• Errors of omission

(a) Omitting an entry completely (T/B agrees)

(b) Omitting to post the ledger account from the
subsidiary books (T/B does not agree)
Clerical Errors
• Errors of Commission

(a) Writing the wrong amount in the subsidiary

books(T/B agrees)
(b) Wrong casting of subsidiary books (T/B does
not agree)
(c) Posting wrong amount in the ledger (T/B does
not agree)
Clerical Errors
• Errors of Commission (Continued)

d) Posting an amount on the wrong side (T/B

does not agree)
e) Wrong balancing of account (T/B does not
agree)
Clerical Errors
• Compensating Errors

• Effect of one error is compensated by another

error
• Trial Balance will agree

Example : Amount received from X Rs. 1,000 is

not credited to his account and sales book is
excess by Rs. 1,000
Location of errors
• T/B should be totaled again
• Ledgers should be balanced again
• Casting of subsidiary books should be checked
again
• Posting of amounts equal to difference should be
checked again
Rectification of Errors
• An error can be detected at any of the following
stages :

(a) Before preparation of T/B

(b) After T/B but before final accounts are drawn
(c) After final accounts are drawn i.e. next
accounting period
Rectification of Errors
• Before preparation of T/B

• It is not possible to pass a complete rectification

entry
• Corrected by making rectification statement in
appropriate side of the concerned account
Example
• Sales book for November is undercast by Rs.
20,000
Implications:
• Only Sales A/c is to be corrected
• No error is customer A/c
• Credit side: “By undercasting of sales for
November Rs. 20,000
Example
• Rs. 50,000 received from Rohit entered on the
Dr side of his account
Implications:
• Cash book is correctly written
• Wrong debit is to be removed and also credit is
to be given
• Cr side: “By posting on wrong side Rs. 50,000
Example
• B/R from Rahul of Rs. 20,000 was posted to the
credit side of B/P and also credited to Rahul
Account
Implications:
• Dr side B/P “To wrong posting Rs. 20,000”
• Dr side B/R “To omission of posting Rs. 20,000”
Exercise
1. Rs. 300 paid for Machinery purchased has been
charged to ordinary Purchases A/c
2. Repairs made were Dr to Building A/c for Rs.
500
3. Amount of Rs. 100 withdrawn by the proprietor
for his personal use has been Dr to Trade
expenses A/c
4. Rs. 1000 paid for rent Dr to Landlord A/c
Exercise Continued
5. Salary Rs. 1,000 paid to Srikanth has been Dr
to his personal A/c
6. Rs. 2,000 from Ram and Co has been wrongly
entered as from Rama and Co
7. Rs. 500 paid in cash for a typewriter was
charged to office expenses account
8. Purchase of goods from Ravi amounting Rs.
300 has been wrongly entered through sales
book
Exercise Continued
9. Amount of Rs. 5,000 due from Rajan which
has been written off as a bad debt in a previous
year was unexpectedly recovered and has been
posted to the personal account of Rajan
10. Credit sales of Rs. 1,000 to Ramesh has been
wrongly passed through the purchase book
Suspense Account

• Prepared when location of errors may take a

considerable time and the preparation of final
accounts cannot be delayed
• T/B is made to artificially agree by opening a
Suspense Account and putting the difference in
the Trial Balance with this account.
• If Dr exceeds Cr, the difference will be put in Cr
as Suspense Account and vice versa
The End