Rectification of Errors

y Financial Statements should show true and fair view of

affairs of the business.
y Book Keepers and accountants puts efforts but still

possibility of errors.
y Identifying and locating of such errors is essential as many

people use these statements.
y Identify/ Locate--- rectify

Meaning of Errors
y Un intentional commission or omission of amounts and

accounts in the process of recording the transactions .
y Omission Means: error occurs because of not doing some

thing or doing some thing incompletely.
y Commission: here error is committed because lack of

concentration I,e you supposed to one thing but you do something different

y What is the objective of Rectification of Errors? y y To prepare correct accounting records.y What is rectification of Errors y Correcting the errors in the records by proper technique. To Prepare correct financial statement P& L and Balance Sheet .

Types of Errors y Errors of omission: a transaction that is not recorded entered partially or not at all entered y Errors of Principle: GAAP is not followed y Compensating Errors: Purchases Register total is more and Sales Register Total is more by the same amount. y Errors of Commission: ( not disclosed by Trial Balance) y a transaction that is calculated incorrectly. wrong posting. One example of an error of commission is subtracting a figure that should have been added. Posting on wrong side posting wrong amount .

and hence posted two times in the ledger. The difference in the trial balance is transfered to suspense Account. . y The trial balance does not reveal such errors. y Suspense Account: y An account which is opened when the trail l balance does not tally.y Duplicating Error: y An error of duplication arises when the same transaction has been recorded twice I the books of original entry.

y Omission to post a transaction y Posting twice an entry. .Examples of error of Commission y Transaction not entered in Journal. y Wrong entry like wrong amount or wrong account.

Errors affecting two or more accounts (do not affect agreement of Trial Balance) i. Errors of principle Errors of Posting Errors of Casting Errors of Carry forward Errors of omission of balance of any account in the trail balance . Errors of omission iii. ii.y Rectification of Errors Errors affecting one account only (affect agreement of Trial Balance) i. iii. Errors of Posting to wrong account ii. iv.

When the errors can be discovered y Before preparation of Trial Balance.B but before Final Accounts y After preparation T. y After T. B and Final Accounts .

By Striking off wrong figure and replacing it by a correct one not suggested Date Payments By Purchases A/c Rs 1015 1050 y 2. We can divide into . By Passing a Journal Entry: It is followed where errors take place in two accounts.Methods of Rectification of Errors y 1.

y 1. More credit to Hari Priya ii.Dr 500 To Cash Sales A/c 5000 5000 . Errors which occurs simultaneously in two accounts causing a short debit in one and excess debit in another or an excess credit in one and a short credit in another account y Cash Sales Rs 5000/Cash Account Dr 5000 To Hari Priya·s A/c i. Less Credit to Cash sales correction: Hari Priya·s A/c ---------.

An error which occurs simultaneously in two accounts but on the opposite sides causing a more or less debit in one and more or less credit in a the other account Purchases from Naresh Trading Co. Less debit to Purchases A/c ii.2.Dr 396 To Naresh Trading Co A/c 396 ( Being a credit purchase of Rs 501 written as 105 in the purchases book no w correct) . Less credit to Naresh Trading Co A/c Correction: Purchases A/c ------. Rs 501 Purchases A/c Dr 105 To Naresh Trading Co A/c 105 i.

y 3. y Purchase s Rs 500 from A omitted to be recorded. y Pass an entry for correction: . An error which occurs in two accounts due to omission of recording the transaction in a subsidiary book .

000 is shown as 100 y In the depreciation a/c it will be shown as y To Wrong posting y of Rs 1.y 3. Making further debit or credit entry in the account y affected putting the difference in Suspense: y Example: Depreciation Rs 1.000 as 100 corrected Rs 900 y If there is difference in the trial balance because of this transaction y Depreciation A/c Dr y To Suspense A/c 900 .

y Example: Salary Paid Rs 20.y Rectification of Errors when there is no Suspense Account: y Rectification is made without journal entry. y This method is followed when as a result of the error the trial balance disagree and the difference has not been transferred to Suspense Account.Set right by debiting Rs 18.000 is entered as Rs 2000in salaries Account: y ------.000 in salary account .

y After rectification suspense account will be automatically closed. When errors are located the rectifying entries will be passed. .Rectification of Errors when there is Suspense Account: y when it is not possible to locate the error before preparing the final accounts and preparation of the final account can not be delayed. y The difference in trail balance is transferred to suspense Account and carried forward to the next year.

y Nominal accounts affected by the rectification of errors are not touched at all. y Balance of this account transferred to Capital Account. .Rectification after final accounts y A Profit & Loss Adjustment Account is opened and rectification are passed through the same.

b. e. ii. d. iii. They were detected before preparing the Trial Balance They were detected after preparing Trial Balance but before final accounts( difference being taken to Suspense Account) Detected after final accounts( narration to journal entries not required) i. Rs 2.60 paid for purchase of new office furniture was charged to office expenses account. Cash Rs 350 paid to Triman Chemicals posted as Rs 530. was passed through the Sales Day Book as Rs 240. How do you rectify these errors assuming that. Credit Sales to Trivedi & Co of Rs 300 was posted to the credit of their account. . c.y The following errors were committed by the Accountant of Geetha Dye Chemicals: a. A purchase of Rs 420 from Maruti & Co . Purchase of Stationery worth Rs 150 remained un posted from the cash book.

A Sum of of Rs 200 received from Rakesh has been credited Rajesh .y Rectify the following errors y An amount of Rs 600 withdrawn by the proprietor has been debited y y y y to salaries A/c Furniture purchased Rs 500 has been wrongly debited to purchases account. An amount of Rs 300 spent on repairs to machinery has been wrongly debited t Machinery A/c An amount of Rs 400 received on sale of old machinery has been credited to sales account.

f.000 spent for repairs of buildings has been posted to building Account A sale of Rs 730 to Mohinder Singh has been entered in the Sales Book as Rs 370. . d. The total of sales Book has been added Rs 100 too much g. c. preparation of the Trial Balance. Office furniture purchased fro Rs 1. Rs 400 paid as salary to a clerk has been debited to his personal account. Rs 1. b. Goods worth Rs 500 Purchased from Raju have been omitted to be recorded in the books. Rs 75 discount allowed by a creditor has been debited to discount Account.800 has been passed through the Purchases Book. e.y How will you rectify the following errors discovered before a.

No a b c d Particulars Credit Triman Chemicals RS 180(530-350) Debit Stationery Account Rs 150 Office Furniture A/c Dr To Office Expenses Account Debit Trevedi & Co·s Account 600 (300 for cancelling the wrong credit and Rs 300 for the proper debit) Dr To Maruti & Co· Account ( For cancelling the wrong credit given to Sales Account) Purchases Account Dr To Maruti & Co Account ( For the correct entry) Sales Account LF Dr Rs Cr Rs 260 260 e 240 240 420 420 f .y i) Errors detected before preparing the Trial Balance Sr.

No a b c d Particulars Suspense Account Dr. To Suspense Account LF Dr Rs Cr Rs 180 180 150 150 260 260 300 300 240 240 420 420 Office Furniture A/c Dr To Office Expenses Account Trevedi & Co·s Account Dr To Suspense A/c(300 for cancelling the wrong credit and Rs 300 for the proper debit) Dr To Maruti & Co· Account ( For cancelling the wrong credit given to Sales Account) Purchases Account Dr To Maruti & Co Account ( For the correct entry) Sales Account e f . y JOURNA ENTREIS IN THE BOOKS OF GEETHA DYE CHEMICALS Sr. To Triman Chemicals A/c (530-350) Stationery Account Dr.y ii) Errors detected after preparing the Trial Balance but before preparing the final account.

No a b c d Particulars Suspense Account Dr. To Triman Chemicals A/c (530-350) Profit and Loss Adjustment Account Dr To Suspense Account Office Furniture A/c Dr To Profit and Loss Adjustment Account Trevedi & Co·s Account Dr To Suspense A/c(300 for cancelling the wrong credit and Rs 300 for the proper debit) Profit and Loss Adjustment A/c Dr To Maruti & Co· Account ( For cancelling the wrong credit given to Sales Account) Profit and Loss A/c To Maruti & Co Account ( For the correct entry) Dr LF Dr Rs Cr Rs 180 180 150 150 260 260 300 300 240 240 420 420 e f all nominal accounts are ignored and entries are made only for expenses & incomes not accounted and assets wrongly debited .y y ii) Errors detected after preparing the final accounts JOURNA ENTREIS IN THE BOOKS OF GEETHA DYE CHEMICALS Sr.

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