and summarising the financial transactions whether TB tallies or not Can be broadly classified into: Clerical errors and errors of principle 1. and compensating errors Errors of omission: when a transaction is completely omitted from the books of accounts Errors of commission:errors on account of wrong balancing. Errors of principle: when proper distinction between revenue and capital items is not made. Eg. Clerical errors: Errors of omission. classifying. commission.ERRORS Errors may be there in recording. totalling etc. posting. carry forwards. Errors of compensation: errors which compensate each other 2. Sale of furniture ² recorded in sales .

and compensating errors . Errors which do not affect the agreement of the Trial Balance : errors of omission.can easily locate . principle. Errors which affect the agreement of the Trial Balance: errors of commission .difficult to locate 2.ERRORS Errors can be classified into two categories from the point of view of locating them 1.

150 as 115 For correcting errors that do not affect the TB. Wrong entry of Rs. we have to pass rectification entries in the Journal Eg. credited in T.Sharma. Amt paid by S.Sharma¶s account .ERRORS Correction of errors that affect the TB would not be through Journal Entry ± instead we place the corrective amount on the proper side as µmistake in posting¶ Eg.

. the amount should be divided by 2. If no mistake is found out by step1. Difference of the two sides of TB should be found out.ERRORS Procedure to locate errors which affect the agreement of the TB 1. check the two sides of TB to find out if there is an amount equal to that figure: amount may be placed to wrong side 2. it can be an error of transposition of figures. there is possibility of wrong casting or wrong carry forwards of totals of a subsidiary book or there is an error in balancing the accounts . 698 written as 896 3. divide the difference by 9. Eg. If the difference is a round figure. if the figure is completely divisible.

Schedules of Sundry debtors and creditors needs to be checked to find out whether all balances of debtors and creditors have been included in the schedules 7. totals of subsidiary books (sales book.ERRORS 4. check whether the cash and bank account balances are taken in the TB or not 6.check the books of original entry and their posting and balancing . If difference is not a round figure there is possibility of error being committed in posting 5. purchase book«) should be checked to see whether postings from these books are correctly made to the concerned account 8.

we can transfer the difference to an account called Suspense Account An adjustment account to which we transfer the difference between debit and credit side of the trial balance ² suspense account If debit side is short ² suspense account will be debited as ¶To Difference in TB· If Credit side is short ² suspense account will be credited as ¶By Difference in TB· .SUSPENSE ACCOUNT If the difference cannot be located even after the above mentioned procedures.

RECTIFYING ACCOUNTING ENTRIES Rectifying entries are passed in General Journal or Journal Proper Rules Find out the accounts affected by the error Find out what should have been and what has been done Credit or debit the respective account in order to set the matters right Put the difference to Suspense account .

RECTIFICATION OF ERRORS THROUGH P&L ADJUSTMENT ACCOUNT P&L Adjustment account is debited or credited while passing the rectifying accounting entries in place of those accounts which relate to trading and Profit and Loss account .

balance of suspense Account and P&L Adjustment account opened for rectification is transferred to the Capital Account .RECTIFICATION OF ERRORS THROUGH CAPITAL ACCOUNT In this case.

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