FINAL ACCOUNTS FROM INCOMPLETE RECORDS:SINGLE ENTRY

NETAJI NAGAR COLLEGE

B.COM 1ST YEAR, 2016

DR. BISWAJIT BHADRA

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Rectification of Errors

ERRORS- THE CONCEPT

Errors are unintentional mistakes made by the

accountant/book-keeper while recording transactions in the

books of accounts.

In the process of accounting, a trial balance is prepared which

only reflects the arithmetical accuracy but does not guarantee

the absence of any errors in the books .

In such a case if trial balance agrees there may or may not be

errors in the books but if trail balance does not agree it

clearly indicates some kind of error(s) in the books of accounts.

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TYPES OF ERRORS

On the basis of nature:

ERRORS OF OMISSION [Total/Partial]

ERRORS OF COMISSION [Amount/Account]

ERRORS OF PRINCIPLE [Nature of expenditure]

ERRORS OF MISPOSTING [Ledger]

COMPENSATING ERRORS [Set off]

On the basis of effects:

One sided error

More than one sided error [Two sided error]

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SINGLE-SIDED ERRORS

All errors are not identified by the trail balance.

Errors which are identified at the time of tallying

the trial balance are SINGLE-SIDED ERRORS.

1. These errors affect only one side of the

accounts[either debit side or credit side] OR

2. Both the debit and credit aspects of the accounts

by different amounts.

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SINGLE-SIDED ERRORS

These can be –

Errors of partial omission OR

Errors of Commission:

1. Errors of Casting

2. Errors of Carry-forward

3. Errors of posting to wrong account

4. Errors of posting on wrong side of correct account

5. Errors in balancing an account

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DOUBLE SIDED ERRORS

Errors which do not get identified by the trial

balance usually affect both the debit as well as the

credit aspects of the accounts by the same amount.

So they are also referred to as DOUBLE SIDED

ERRORS.

Such an error can be rectified only by a

rectification entry.

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DOUBLE SIDED ERRORS

These can be –

Errors of total omission:

1. Complete omission of recording

2. Complete omission of posting

Errors of Commission:

1. Recording transaction in wrong book of accounts

2. Incorrectly recording transaction in correct book of

accounts

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DOUBLE SIDED ERRORS

Errors of principle

Errors of misposting

Compensating errors

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Rectification of Errors

The type of rectification entry to be passed

depends on the stage at which error has been

detected.

The stages of error detection are –

1. Before the preparation of Trial Balance

2. After the preparation of Trial Balance but before

Final Accounts

3. After the preparation of Final Accounts

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Before the preparation of Trial Balance

At this stage, the ledger accounts are not yet closed

for the accounting period. So rectification at this

stage is done by passing a Rectification Statement

for any single sided error.

For rectifying a double sided error a rectification

entry may be passed involving personal, real or

nominal accounts.

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After the preparation of Trial Balance but

before Final Accounts

At this stage, the ledger accounts are already closed for the accounting period. So while preparing trial balance if any error is detected, repetitive checking is done to identify the cause of such error.

If the error cannot be identified even after such checking but the preparation of final accounts cannot be delayed further, the trial balance is tallied on a temporary basis with the help of Suspense Account.

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Suspense Account

Existence of Suspense Account indicates the

presence of some error in the books of accounts.

Suspense Account arises when:

1. Trial balance cannot be tallied

2. Accountant is not sure of the accounting treatment

of any particular transaction.

Suspense A/c is a temporary measure which has to

be disposed by identifying and rectifying the

error.

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MCQ (the red colour option is the answer)

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1.Whenever errors are noticed in the accounting

records, they should be rectified –

a) At the time of preparation of the trial balance

b) Without waiting for the accounting year to end

c) After the preparation of final accounts

d) In the next accounting year

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2. Difference totals of both of debit and credit side

of trial balance is transferred to –

a)Difference account

b) Trading account

c) Profit & loss account

d) Suspense account

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3. After preparing the trial balance the accountant

finds that the total of debit side is short by Rs.

25000. The difference will be -

a) Credited to suspense account

b) Debited to suspense account

c) Adjusted to debit balance account

d) Adjusted to credit balance account

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4. Errors which affect one account can be –

a) Errors of omission

b) Errors of principle

c) Errors of posting

d) None of the above

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5. Purchase of furniture for Rs 20000 has

been debited to Purchase A/c. It is –

a) An error of omission

b) An error of commission

c) Compensating error

d) An error of principle

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6. Error of commission do not permit –

a) The trial balance to agree

b) Correct total of balance sheet

c) Correct totalling of trial balance

d) None of the above

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7. Goods taken away by the proprietor for

personal use not recorded anywhere -





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8. Sales book was overcast by Rs 5000





After the preparation of Trial Balance

but before Final Accounts- Rectification

Rectification of any error is done by passing a

Rectification Entry.

Rectification of single sided errors are done by

passing rectification entries involving Suspense A/c.

Rectification of double sided errors are done by

passing rectification entries without involving

Suspense A/c.

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After the preparation of Final Accounts

At this stage, Final Accounts have been prepared. So all

nominal accounts have been closed with a closing entry.

Rectification of any Nominal Account is therefore done

by replacing such nominal account with Profit & Loss

Adjustment Account.

Rectification of single sided errors are done by passing

rectification entries involving Suspense A/c.

Rectification of double sided errors are done by

passing rectification entries without involving Suspense

A/c.

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Profit & Loss Adjustment Account

It is a special account that replaces nominal

accounts if errors are rectified after preparation of

Final Accounts.

It is called so because adjustments of the nominal

accounts results in the adjustment of profit/loss of

the preceding period. The net balance of the P/L

Adjustment A/c helps to know the correct profit/loss

for the accounting period.

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Effect on profit or loss

When any nominal account is debited in rectification

entry-

Profit decreases or loss increases

When any nominal account is credited in

rectification entry-

Profit increases or loss decreases

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EXAMPLES: Before Preparing The

Trial Balance

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The following errors were committed by the

Book-keeper. Rectify the errors assuming that

they were detected before preparing the Trial

Balance:

Rs. 50000 paid for construction of new room

was charged to office expense account.

Building A/c ….Dr. 50000

To Office Expense A/c 50000

Credit sale to Ram 5400 was posted to

his account.27

Ram Account will be debited to 5400

Purchase from Amir 6500 was entered in the

Purchase Day Book as 5600.

Purchase A/c ….Dr. 900

To Amir A/c 900

Sales day book was overcast by 8200

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Sales account will be debited by 8200

Wages paid for installation of a machine for

56000 wrongly debited to wages account.

Machinery account …Dr. 56000

To wages account 56000

Commission payable to John 400 was wrongly

recorded as Commission Receivable from him29

Commission Receivable A/c …Dr. 400

Commission Payable A/c … Dr. 400

To John A/c 800

A purchase of 8000 from Lama was passed through

the Sales Day Book

Purchase A/c ..Dr. 8000

Sales A/c .. Dr. 8000

To Lama A/c 16000

Return Inward Book was cast short by 4500

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Return Inward Account will be debited by 4500

Goods returned by Shyam 9300 was posted to his

account from the Return Inward Book as 3900.

Shyam account will be debited by 5400

EXAMPLES: After Preparing The

Trial Balance

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Purchase stationery 4500 was recorded as purchase of machinery

Stationery A/c..Dr. 4500

To Machinery A/c 4500

Cash paid to Bose 30100 was posted in his account as 10300

Bose A/c… Dr. 19800

To Suspense A/c 19800

A purchase of 67100 had been posted to the debit

of supplier as 6170032

Suspense A/c …Dr. 128800 (67100+61700)

To Creditor A/c 128800

A cash sale of 7300 to Rupam correctly entered in

the cash book, was posted to the debit of Rupam’s

personal account in the ledger.

Suspense A/c …Dr. 14600

To Sales A/c 7300

To Rupam A/c 7300

Purchase Day Book was overcast by 52300

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To Purchase A/c 52300

The purchase day book total 69600 had been

posted as 66900

Purchase A/c …Dr. 2700


An item of purchase of 15100 was entered in the inward

invoice book as 1500 and posted to the supplier’s account as

510034

Purchase A/c …Dr. 13600 [15100-1500]

To Creditor A/c 10000 [15100 – 5100]


Bills receivable from X of 100000 was posted to

the credit of bills payable account and also credited

to the account of X

Bills Receivable A/c…Dr. 100000

Bills Payable A/c…. Dr. 100000


EXAMPLES: After Preparing The

Final Accounts

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Purchase stationery 4500 was recorded as

purchase of machinery

Profit & Loss Adjustment A/c..Dr. 4500

To Machinery A/c 4500

Cash paid to Bose 30100 was posted in his account

as 10300

Bose A/c… Dr. 19800


A purchase of 67100 had been posted to the debit

of supplier as 6170036

Suspense A/c …Dr. 128800 (67100+61700)

To Creditor A/c 128800

A cash sale of 7300 to Rupam correctly entered in

the cash book, was posted to the debit of Rupam’s

personal account in the ledger.


To Profit & loss Adjustment A/c 7300

To Rupam A/c 7300

Purchase Day Book was overcast by 52300

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To Profit & Loss Adjustment A/c 52300

The purchase day book total 69600 had been

posted as 66900

Profit & Loss Adjustment A/c …Dr. 2700


An item of purchase of 15100 was entered in the inward

invoice book as 1500 and posted to the supplier’s account

as 510038

Profit & Loss Adjustment A/c …Dr. 13600 [15100-1500]

To Creditor A/c 10000 [15100 – 5100]


Bills receivable from X of 100000 was posted tothe credit of bills payable account and also creditedto the account of X

Bills Receivable A/c…Dr. 100000

Bills Payable A/c…. Dr. 100000


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Discount of 500 allowed to a debtor has been

treated as discount received. The debtor’s

account has been correctly credited.

Profit & Loss Adjustment A/c ..Dr. 1000 [ 500 X 2]


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THANK YOU

FINAL ACCOUNTS FROM INCOMPLETE RECORDS:SINGLE ENTRY

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