FINAL ACCOUNTS & ERRORS AND RECTIFICATION

FINAL ACCOUNTS

& ERRORS AND

RECTIFICATION

Prepared by Mrs.M.Janani

Department of Commerce (International Business)

Governement Arts College, Coimbatore – 18.

Reference:

http://www.brainkart.com/article/Final-accounts-with-adjustments_34241/

Financial Accounting

Author: T.S.Reddy & Dr.A.Murthy

http://www.brainkart.com/article/Final-accounts-with-adjustments_34241/

1. FINAL ACCOUNTS

Given below are the balances of Pandian as on 31st March, 2016.

Adjustments: i. The stock value at the end of the accounting period was Rs. 5,000 ii. Interest on capital at 6% is to be provided iii. Interest on drawing at 5% is to be provided iv. Write off bad debts amounting to Rs. 2,000

v. Create provision for bad and doubtful debts on sundry debtors @ 10% vi. Prepare final accounts for the year ended 31st March, 2016.

Solution

RECTIFICATION OF ERRORS

One – Sided Errors

I. Errors of Totalling or Casting

Rectify the following errors:

(a) Purchases Book is over cast by Rs.300 (for the month of March).

(b) Sales Book has been under cast by Rs.200.

(c) Purchase Returns Book has been over cast by Rs.75.

(d) Sales Returns Book has been under cast by Rs.50.

Explanation:

S.No. Nature of mistake Effect of mistake Rectification

(a) Over casting of Purchase Book Excess Debit Credit the Purchases

A/c

(b) Under casting of Sales Book Under Credit Credit Sales A/c

(c) Over casting of Purchase returns Book Excess Credit Debit Purchase

Returns A/c

(d) Under casting of Sales Returns Book Under Debit Give a further debit

to Sales Returns A/c

Rectification : To rectify the errors:

(a) Credit purchases A/c with Rs.300

(b) Credit Sales A/c with Rs.200

(c) Debit purchase Returns A/c with Rs.75

(d) Debit Sales Returns A/c with Rs.50

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II. Errors of Carry Forward

(i) Purchases book is carried forward Rs.350 less.

(ii) Sales Book total is carried forward Rs.500 more.

(iii) A total of Rs.758 in the Purchases Book has been carried forward as Rs.857.

(iv) The total of the Sales Book Rs.755 on page 20 was carried forward to page 21 as Rs.557.

(v) Purchase Returns Book was carried forward as Rs.1,520 instead of Rs.5,120.

Explanation:

S.No. Nature of mistake Effect of mistake Rectification

(i) Carrying forward lower amount in

Purchase book

Under debit Give further debit to

Purchases A/c

(ii) Carrying forward higher amount in Sales

Book

Excess Credit Debit Sales A/c

(iii) Carrying forward higher amount in

Purchases Book

Excess debit Credit Purchases A/c

(iv) Carrying forward lower amount in Sales

Book

Under credit Give further credit to

Sales A/c

(v) Carrying forward higher amount in

Purchase Returns Book

Excess Credit Debit Purchase

Returns A/c

Rectification:

(i) Debit Purchases A/c with Rs.350

(ii)Debit Sales A/c with Rs.500

(iii) Credit Purchases A/c with Rs.99

(iv) Credit Sales A/c with Rs.198

(v) Debit Purchase Returns A/c with Rs.3,600

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III. Errors of Posting


1. Purchases from Akila for Rs.1,500 has been posted to the debit side of her account.

2. Sales to Vijay for Rs.1,520 has been posted to his credit as Rs.1,250

3. Purchases from Chandra for Rs.750 has been omitted to be posted to the personal A/c.

4. Sales to Kandan for Rs.780 has been posted to his account as Rs.870

Solution:

1. Purchases from Akila should have been posted to the credit of Akila’s A/c, but it has been

debited.

Hence:

Credit Akila’s A/c with double the amount i.e., Rs.3,000

2. Sales to Vijay must find itself on the debit side of Vijay’s account but his account is credited

with Rs.1,250

Hence:

Debit Vijya’s A/c with Rs.1,250 + Rs.1,520 i.e., Rs.2,770

3. This is an omission to post to the Personal A/c. Note that posting must be to the credit of

Chandra’s A/c

Hence:

Post Rs.750 to the credit of Chandra’s A/c

4. Here Kandan’s A/c has been debited with a wrong amount i.e., with excess amount. To rectify

this error, the excess amount must be credited to his account.

Hence:

Credit Kandan’s A/c with Rs.90

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Comprehensive problems for One sided Errors


1. Sales to Sridhar Rs.152, posted to his account as Rs.125

2. Purchased goods from Manohar Rs.550, credited as Rs.505

3. Received Bills Receivable from Seenu Rs.1,000 posted as Rs.100

4. Purchased furniture from Raghu Rs.404 on credit debited as Rs.440

5. Discount allowed Rs.64 to Anbu credited to his account as Rs.46

6. Discount received Rs.37 from Babu posted to his account as Rs.39

7. Purchased furniture on cash for Rs.2,000 was not posted.

Solution:

1. Debit Sridhar’s A/c by Rs.27

2. Credit Manohar’s A/c by Rs.45

3. Credit Seenu’s A/c by Rs.900. Bills Receivable A/c is correct.

4. Credit furniture A/c by Rs.36 being excess debit given to furniture A/c. Raghu’s A/c is correct.

5. Credit Anbu’s A/c by Rs.18

6. Credit Babu’s A/c by Rs.2

7. Debit furniture A/c by Rs.2,000. Cash A/c is correct as there is no mistake in recording this

transaction.

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Double-sided Errors

1. The following errors were found in the books of Prabhakar & Sons. Give the necessary entries

to correct them:

a. Salary of Rs.1,000 paid to a Mohan due to him has been debited to his personal account.

b. Rs.1,500 paid in cash for a typewriter was charged to office expenses account.

c. Rs.5,000 paid for furniture purchased has been charged to purchases account.

d. Repairs made were debited to Building Account for Rs.250

e. An amount of Rs.500 withdrawn by the proprietor for his personal use has been debited to

trade expenses account.

f. Rs.200 received from Shanthy & Co., has been wrongly entered as from Shajahan & Co.

Solution:

Books of Prabhakar & Sons

Rectifying Journal Entries

Errors Particulars L.F. Debit

Rs.

Credit

Rs.

a Salaries A/c Dr.

To Mohan A/c

(Correction of wrong debit to Mohan’s personal A/c for

salaries paid)

1,000

1,000

b Typewriter A/c Dr.

To Office expenses A/c

(Correction of wrong debit to office expenses A/c for

purchase of typewriter)

1,500

1,500

c Furniture A/c Dr.

To Purchases A/c

(Correction of wrong debit to purchases account for furniture

purchased)

5,000

5,000

d Repairs A/c Dr.

To Building A/c

(Correction of wrong debit to building account for repairs

made)

250

250

e Drawings A/c Dr.

To Trade expenses A/c

(Correction of wrong debit to Trade expenses A/c for cash

withdrawn by the proprietor for his personal use)

500

500

f Shajahan & Co. A/c Dr.

To Shanthi & Co. A/c

(Correction of wrong credit to Shajahan & Co. instead of

Shanthi & Co.)

200

200

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2. Give journal entries to rectify the following errors:

a. A purchase of goods from Deva amounting to Rs.250 has been wrongly passed through the

sales book.

b. A credit sale of goods Rs.300 to Raja has been wrongly passed through the purchases book.

c. Sold old furniture for Rs.1,500, passed through the sales book.

d. Paid wages for the construction of Building debited to wages account Rs.10,000

e. A cheque for Rs.500 received from Madan was dishonoured and had been posted to the debit

of sales returns account.

f. Paid Rs.1,000 for the installation of Machinery debited to wages account.

g. On 31st Dec. 1996 goods of the value of Rs.500 were returned by S.Singh and were taken into

stock on the same date, but no entry was passed in the books.

Solution:



Rs.

Credit

Rs. a Purchases A/c Dr.

Sales A/c Dr.

To Deva A/c

(Correction of wrong entry in sales book of a purchase of goods

from Deva)

250

250

500

b Raja A/c Dr.

To Purchases A/c

To Sales A/c

(Correction of wrong entry in purchases book of a credit sale of

goods to Raja)

600

300

300

c Sales A/c Dr.

To Furniture A/c

(Correction of wrong credit to sales account for sale of old

furniture)

1,500

1,500

d Building A/c Dr.

To Wages A/c

(Correction of wrong debit to wages account for wages paid for

construction of building)

10,000

10,000

e Madan A/c Dr.

To Sales Returns A/c

(Correction of wrong debit to sales returns account for dishonor of

cheque received from Madan)

500

500

f Machinery A/c Dr.

To Wages A/c

(Correction of wrong debit to wages account for wages paid for

installation of machinery)

1,000

1,000

g Sales Return A/c Dr.

To S.Singh A/c

(Entry of goods returned by him and taken into stock omitted from

records)

500

500

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Suspense Account

1. Correct the following errors found in the books of Mr. Dhandapani. The Trial Balance was out

by Rs.986, excess credit. The difference has been posted to a suspense account.

a. A sale of Rs.400 to Bobby & co., was wrongly credited to their account.

b. A purchase of Rs.134 had been posted to the creditor’s account as Rs.120

c. The total of returns inward book for December had been cast Rs.200 short

d. A cheque for Rs.400 received from Sandhya had been dishonoured and was posted to the debit

of “Allowance account”.

Solution:

In the Books of Dhandapani



Rs.

Credit

Rs.

a Bobby & Co. A/c Dr.

To Suspense A/c

(Being the correction of the mistake by which the account of

Bobby & Co. was credited by Rs. 400 instead of being

debited)

800

800

b Suspense A/c Dr.

To Creditor’s A/c

(Being the mistake in crediting the creditor’s account less by

Rs.14 now corrected)

14

14

c Return Inward A/c Dr.

To Suspense A/c

(Being the mistake of totalling the Return Inward Book

corrected)

200

200

d Sandhya A/c Dr.

To Allowances A/c

(Being the cheque of Sandhya dishonoured previously debited

to Allowances A/c)

400

400

Suspense Account

31

Dec

To Difference in Trial Balance

To Creditors A/c

986

14

31

Dec

By Bobby & Co. A/c

By Return inward A/c

800

200

1000 1000

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2. A book-keeper failed to balance his trial balance, the credit side exceeding the debit side by Rs.1,750.

This amount was entered in a suspense account. Later the following errors were discovered:

a. Goods worth Rs.6,200 sold to Rahim were correctly entered in the Sales Book, but posted to Rahim’s

account as Rs.2,600

b. A credit balance of Rs.7,550 of Rent Receivable account was shown as Rs.5,700

c. The total of Returns outward book amounting to Rs.2,000 was not posted to ledger

d. Goods worth Rs.1,000 purchased from Prema were wrongly entered in the sales book. The account of

Prema was correctly credited.

e. The sales book was under cast by Rs.1,000

f. The total of the credit side of Dravid’s account was over cast by Rs.1,000

Give the journal entries to rectify the above errors and prepare the suspense account.

Solution:



Rs.

Credit

Rs.

a Rahim A/c Dr.

To Suspense A/c

(Being goods sold for Rs.6,200 were correctly entered in sales book,

but wrongly posted to Rahim’s account as Rs.2,600 now corrected)

3,600

3,600

b Suspense A/c Dr.

To Rent Receivable A/c

(Being a credit balance of Rs.7,550 of rent receivable A/c was shown

as Rs.5,700 now corrected)

1,850

1,850

c Suspense A/c Dr.

To Return outward A/c

(Being the total of Returns outward book was not posted to ledger, now

rectified)

2,000

2,000

d Purchases A/c Dr.

Sales A/c Dr.

To Suspense A/c

(Being correction of wrong entry in the sales book of a purchase of

goods from Prema. The account of Prema was correctly credited)

1,000

1,000

2,000

e Suspense A/c Dr.

To Sales A/c

(Being the sales book which was under cast, now corrected)

1,000

1,000

f Dravid A/c Dr.

To Suspense A/c

(Being the credit side of Dravid’s A/c which was over cast, now

corrected)

1,000

1,000

Suspense Account

Rs. Rs.

To Difference in Trial Balance 1,750 By Rahim A/c 3,600

To Rent Receivable A/c 1,850 By Purchase A/c 1,000

To Returns Outward A/c 2,000 By Sales A/c 1,000

To Sales A/c 1,000 By Dravid A/c 1,000

6,600 6,600

Preparation of Suspense A/c and ascertaining the effect on profit

1. Pass rectifying entries for the following and point out their effect on profit or loss:-

a. An amount of Rs.600 withdrawn by the proprietor for his personal use, is posted to travelling

expenses account.

b. A customer’s cheque of Rs.300 received through Sankaran was credited to Sankaran’s

Account.

c. Rs.900 spent in the extension of plant & machinery are posted to wages account.

d. Rs.1,120 were spent in the repair of a machine but this amount is posted in machinery account.

e. Goods of Rs.400 were returned by Mohinder, these goods were included in stock but no record

for it was made in the books of account.

f. Gowri Shankar’s cheque of Rs.500 was dishonoured, its amount was posted to allowance

account.

g. Rs.6,000 spent in extension of factory building were charged to Repairs Account.

Solution:



Rs.

Credit

Rs.

a Drawings A/c Dr.

To Travelling expenses A/c

(Being wrong posting to travelling expenses A/c now rectified)

600

600

b Sankaran A/c Dr.

To Concerned customer A/c

(Being amount of Rs.300 of a cheque received through

Sankaran wrongly credited to his account now rectified)

300

300

c Plant & Machinery A/c Dr.

To Wages A/c

(Being wrong posting to wages A/c now rectified)

900

900

d Repairs A/c Dr.

To Machinery A/c

(Being wrong posting of Machinery A/c now rectified)

1,120

1,120

e Returns Inward A/c Dr.

To Mahinder A/c

(Being entry made for omission)

400

400

f Gowri Shankar’s A/c Dr.

To Allowances A/c

(Being wrong posting of allowances A/c now rectified)

500

500

g Factory Building A/c Dr.

To Repairs A/c

(Being wrong posting to repairs A/c now rectified)

6,000

6,000

Effect on Gross Profit and Net Profit

Entries Gross Profit

Rs.

Net Profit

Rs.

a x +600

b x x

c +900 +900

d x -1,120

e -400 -400

f x +500

g x +6000

500 6,480

The effect of above rectifying entries is that gross profit will increase by Rs.500 and net profit

will increase by Rs.6,480.

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2. The difference of Trial Balance of a Trader Rs.1,118 has been transferred to Suspense Account. Later

on the following errors were discovered. Pass the necessary rectifying entries. Open Suspense Account

and show the effect of rectifying entries on profit or loss.

a. Depreciation of Rs.200 was charged on Machinery but it was not recorded in depreciation account.

b. A discount of Rs.87 was allowed to Rajesh, but in his account only Rs.28 was recorded.

c. A Sale of Rs.344 was recorded in Sales Account as Rs.434

d. A Machinery of Rs.4,000 was purchased, but was recorded in purchases book.

e. Instead of crediting Rs.1,024 in Madan’s Account Rs.430 were debited in his account.

f. Total of Sales Returns Book was under case by Rs.100.

Solution: Rectifying Journal Entries


Rs.

Credit

Rs.

a Depreciation A/c Dr.

To Suspense A/c

(Being omission of posting to depreciation A/c now rectified)

200

200

b Suspense A/c Dr.

To Rajesh A/c

(Being wrong posting to Rajesh A/c now corrected)

54

54

c Sales A/c Dr.

To Suspense A/c

(Being wrong posting to Sales A/c now rectified)

90

90

d Machinery A/c Dr.

To Purchases A/c

(Being wrong record of purchases now corrected)

4,000

4,000

e Suspense A/c Dr.

To Madan A/c

(Being rectifying entry made for wrong posting)

1,454

1,454

f Sales Returns A/c Dr.

To Suspense A/c

(Being under casting of sales returns now rectified)

100

100

Suspense Account

Rs. Rs.

To Rajesh A/c 54 By Balance b/d 1,118

To Madan A/c 1,454 By Depreciation A/c 200

By Sales a/c 90

By Sales Returns A/c 100

1,508 1,508

Effect on Gross Profit and Net Profit

Entries Gross Profit

Rs.

Net Profit

Rs.

A x -200

B x x

C -90 -90

D +4,000 +4,000

E x x

F -100 -100

3,810 3,610

The effect of above rectifying entries is that gross profit will increase by Rs.3,810 and the net

profit will increased by Rs.3,610.

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Rectification of errors during the Subsequent Accounting year

1. Mr.Madan while balancing his books finds that he is out by Rs.280. Being required to prepare

the final accounts he places the difference to a newly opened suspense account which he carries

forward to the next year. In the next year, the following mistakes were discovered.

a. Goods bought from Mr.Mani amounting to Rs.50 had been posted to the credit of his account

as Rs.550.

b. A dishonoured bill receivable for Rs.2,000 returned by the bank had been credited to the bank

account and debited to Bills Receivable account.

c. An item of Rs.100 entered in Sales returns book had been posted to the debit of the customer

who returned the goods.

d. Sundry items of furniture sold amounting to Rs.2,600 had been entered in sales day book.

e. Discount amounting to Rs.20 from a creditor had been duly entered in his account but not

posted to discount account.

Pass the journal entries with proper narration necessary for rectifying the above mistakes and

prepare suspense account.

Solution:

Books of Madan



Rs.

Credit

Rs.

a Mani A/c Dr.

To Suspense A/c

(Being goods purchased from Mani for Rs.50 posted to

credit of his account as Rs.550, now rectified)

500

500

b Debtors A/c Dr.

To Bills Receivable A/c

(Being bill receivable returned by bank dishonoured debited

to bills receivable account, now rectified)

2,000

2,000

c Suspense A/c Dr.

To Customer/s A/c

(Being goods returned debited to the customer’s account

now rectified)

200

200

d Profit % Loss Adjustment A/c Dr.

To Furniture A/c

(Being furniture sold passed through the sales day book now

rectified)

2,600

2,600

e Suspense A/c Dr.

To Profit and Loss Adjustment A/c

(Being discount received not credited to discount account,

now rectified)

20

20

Suspense Account

Rs. Rs.

To Balance b/d 280 By Mani A/c 500

To Customer’s A/c 200

To Profit & Loss Adjustment A/c 20

500 500

FINAL ACCOUNTS & ERRORS AND RECTIFICATION

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