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Error Rectification in Accounting

This document discusses the rectification of various types of errors in accounting records. It outlines four main types of errors: errors of omission, errors of commission, errors of principle, and compensating errors. It explains that errors should be rectified by passing rectifying journal entries rather than overwriting or erasing. The location of errors is also described, whether they affect the trial balance agreement or not. Specific examples are provided for rectifying errors of principle and compensating errors through contra entries. Methods for locating errors that affect the trial balance are also outlined.

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AshutoshMali
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241 views11 pages

Error Rectification in Accounting

This document discusses the rectification of various types of errors in accounting records. It outlines four main types of errors: errors of omission, errors of commission, errors of principle, and compensating errors. It explains that errors should be rectified by passing rectifying journal entries rather than overwriting or erasing. The location of errors is also described, whether they affect the trial balance agreement or not. Specific examples are provided for rectifying errors of principle and compensating errors through contra entries. Methods for locating errors that affect the trial balance are also outlined.

Uploaded by

AshutoshMali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Rectification of Errors

By,
Nitu Singh
&
Santosh Kumar Gupta
Errors:

1. Errors of omission
2. Errors of Commission
3. Errors of Principle
4. Compensating Errors

Errors should never be Corrected by Overwriting or by Erasing.


Those should be rectified by passing the relevant rectifying
entries or by preparing new statements.
Location of Errors:
1. Errors Which do not Effect the Agreement of Trial
Balance
• Errors of omission
• Errors of Principle
• Compensating Errors

These Errors are found out when-


•Statement of accounts are received by business.
•Statement of accounts are sent to the Customer.
•During the course of Internal & External Audit.
•Sometime by chance .
Rectification:
•Omission- Passing the Entry.
•Compensating / principle- Passing the journal entry giving the
appropriate debit and credit to the respective accounts which were effected
by the error.(contra entry)
Ex-(error of principle)
A machine costing Rs. 11,000 purchased on credit
from Mohan had been entered in Purchase Book.
Wrong Entry Purchase A/c Dr. 11,000
To Mohan 11,000

Rectification Machinery A/c Dr. 11,000


To Purchase A/c 11,000
Rectification (contd):
 Ex - (compensating error)
 Sale of Rs.500 to Ram is debited as only Rs. 50 to Ram’s A/c, while sale
of Rs. 50 to Shyam is debited as Rs. 500 to Shyam’s A/c.

Ram Dr. 50
To Sales 50
Wrong Entry
Shyam Dr. 500
To Sales A/c 500

Ram Dr. 450


Rectification
To Shyam 450

This rectification entry will rectify the wrong entry by compensating


Ram A/c with Shyam A/c
Location of Errors (contd.):

 Errors which effect the Agreement of Trial Balance


• Errors of commission

1. (Difference of two sides of trial balance) / 2 = ‘X’


Check the side of higher sum to get the amount equal to‘X’.
It happens when amount is placed on wrong side.

Ex- Trial Balance

-------------- 10,000
-------------- 5,000
-------------- 5,000
-------------- 10,000
-------------- 3000
Cash 3000
15,000 21,000
Location of Errors (contd.):

2- (Difference of two sides of trial balance) / 9 = ‘X’

If completely divisible, Then it is the error of Transposition.

Trial Balance
-------------- 5,000
-------------- 10,00
-------------- 10,00 0
-------------- 0
-------------- 5,000
Cash 874
478 874
15478 15874
Location of Errors (contd.):

3- Whether the balance of Cash and Bank account have not


been taken to Trial Balance.

4- Checking The Schedule of Sundry Debtors and Sundry


Creditors to find whether all balance of Debtors and
Creditors are transferred to the schedule or not.

5- Checking the subsidiary books like Sales book, Purchase


book, etc.

6- Checking the books of original entry & their posting into


Ledger & then their balance carry forward to Trial
Balance.
Rectification:

 If error is in Journal or in Account then by passing contra entry.

 If error is in the Trial Balance then by Preparing a new Trial


Balance.

 By opening SUSPENSE Account. It is an account in which the


difference in the Trial Balance has been put temporarily.
(It should not be practiced because it creates doubt about the
authenticity of the Financial Statements.)
Rectification (contd):
Trial Balance
Purchase A/c 5,000
Capital A/c 10,000
Furniture A/c 10,000
Mohan & co. A/c 5,000
Sales A/c 874
Cash 478
15478 15874
Difference = 15847 – 15478 = 396

Suspense A/c
Particulars Amount Particulars Amount
By Balance b/d 396 To Profit & Loss
Adjustment A/c 396
396 396
Thank You

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