Rectification of Error

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    16-Jan-2015
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Accounting Errors and its rectification

Transcript of Rectification of Error

  • 1. Introduction When the business transactions are recorded in the books of accounts there remains a possibility of accounting errors. It may be because of hastiness in writing, negligence, oversight or incomplete knowledge of the principles of accountancy. Some times in order to manipulate the books of accounts, errors are committed intentionally. Irrespective of whether the accounting errors are committed innocently or intentionally they cannot be rectified by erasing with the help of an eraser. Necessary accounting effects are to be given in accounts in order to rectify these errors. Sometimes in an error affects two accounts, in order to rectify the same, a journal entry is passed which is known as a rectification entry and it is recorded in journal proper. Generally two principles should be taken into consideration to rectify the accounting errors. Undo what is wrong Do what is correct. Let us understand this point with the help of an illustration.
  • 2. Rs.1,000 received from Akash is credited in the account of Vikash. To nullify the effect of wrong credit to Vikashs account, debit his account by Rs.1000. (Undo what is wrong). Give correct effect for the omission of a credit of Rs 1,000 to Akashs account. (Do what is correct) Necessary rectification entry will be written as under. Date Particulars L. F. Debit Rs. Credit Rs. Vikashs A/cDr. To Akashs A/c (Being the rectification of Rs.1,000 received from Akash wrongly credited to Vikashs account.) 1,000 1,000
  • 3. TYPES OF ACCOUNTING ERROR: Errors which do not affect the trial balance. Errors which affect the trial balance.
  • 4. Errors which do not affect the trial balance Errors of Omission Errors of Principle Errors of recording to a wrong account Errors committed at the time of recording in primary books (Error of commission) Compensatory errors
  • 5. Errors which affect the trial balance Errors regarding posting Errors regarding balance of an account Errors in totaling the subsidiary books Errors committed at the time of preparing the trial balance
  • 6. (1) Errors of Omission When a transaction is totally omitted to be recorded in the journal or the subsidiary books or the ledger, such an error is known as an error of omission. E.g. Rs.4,000 received from Bhavana is left unrecorded. By writing correct journal entry for this transaction the above error will be rectified. Date Particulars L. F. Debit Rs. Credit Rs. Cash A/c..Dr. To Bhavanas A/c (Being the entry of Rs.4,000 received from Bhavana left unrecorded.) 4,000 4,000
  • 7. (2) Errors of Principle When an error arises because of non-compliance of accounting principles it is known as an error of principle. e.g. Rs.5,000 worth furniture purchase is debited to purchase account. Here purchase of furniture should be debited to furniture account bu purchase account is wrongly debited by Rs.5,000. To nullify this effect, purchase account should be credited by Rs.5,000 and furniture account is to be debited by Rs.5,000 Thus rectification entry will be as under. Date Particulars L. F. Debit Rs. Credit Rs. Furniture A/cDr. To Purchase A/c (Being the rectification entry for purchase of furniture wrongly debited to Purchase account.) 5,000 5,000
  • 8. (3) Errors of Recording to a Wrong Account In such type of an error, journal entry is written correctly but while posting, instead of giving the effect to the correct account by mistake the effect is given to some other account. Thus by debiting or crediting a wrong account with correct amount, on the correct side, the trial balance remains unaffected. e.g. Rs.1,500 received from Susmita, is creditd to Asmitas account. Here at the time of posting, instead of Susmitas account, Asmitas account is wrongly credited. To cancel the wrong effect, debit Asmitas account and give the correct effect, credit Susmitas account. Thus, the error will be rectified
  • 9. Date Particulars L. F. Debit Rs. Credit Rs. Asmitas A/cDr. To Susmitas A/c (Being the rectification entry for the amount received from Susmitas wrongly credited to Asmitas account.) 1,500 1,500
  • 10. (4) Errors of Commission Transaction Recorded in Correct Book with Less Amount Transaction Recorded in Correct Book with More Amount Transaction Recorded in Wrong Subsidiary Books Transaction Recorded in Wrong Subsidiary Book with Wrong Amount
  • 11. (a) Transaction Recorded in Correct Book with Less Amount e.g. goods of Rs.1550 sold to sujata is recorded by mistake as Rs.1,050. In this transaction, the effect is given less by Rs.500 (Rs.1550-Rs.1050). To rectify this error write correct entry with the amount of difference. Date Particulars L. F. Debit Rs. Credit Rs. Sujatas A/cDr. To Sales A/c (Being the rectification entry for recording sales to Sujata by less amount.) 500 500
  • 12. (b) Transaction Recorded in Correct Book with More Amount In this case original entry will be reversed with the amount of difference. E.g. Goods of Rs 1,500 purchased from Mayuri is recorded by mistake as Rs.1,550. Here as the entry is passed with more than the correct amount, to rectify the error reverse entry will be passed with the amount of difference Rs.50 (Rs.1550-Rs.1,500). Date Particulars L. F. Debit Rs. Credit Rs. Mayuris A/cDr. To Purchase A/c (Being the rectification entry for the goods purchased from Mayuri recorded with excess amount.) 500 500
  • 13. (c) Transaction Recorded in Wrong Subsidiary Books In this type of error, instead of recording the transaction in the correct subsidiary books, it is recorded in other subsidiary books. e.g. Goods of Rs. 900 purchased from Akil is recorded in sales book. Here to remove the effect of a transaction wrongly recorded in sales book, reverse entry will be passed as under. Date Particulars L. F. Debit Rs. Credit Rs. Sales A/c.Dr. Purchase A/c...Dr. To Akil A/c (Being the rectification of goods purchased from Akil, wrongly recorded in sales book.) 900 900 1800
  • 14. (d) Transaction Recorded in Wrong Subsidiary Book with Wrong Amount E.g. Goods of Rs 900 Purchased from Akil, is wrongly recorded in sales book as Rs.90. To nullify the effect given in sales book, reverse the entry Rs.90 and give the correct entry for purchases of Rs.900. Date Particulars L. F. Debit Rs. Credit Rs. Sales A/cDr. Purchase A/c.....Dr. To Akil A/c (Being the rectification of goods purchased from Akil Rs.900, wrongly recorded in sales book as Rs.90.) 90 900 990
  • 15. (5) Compensatory Errors In the books of accounts when more than one error exists but because of their nullifying effects on debit and credit sides, the trial balance tallies, such errors are known as compensatory errors. E.g. Total of purchase book is overcast by Rs.500 and receipt of Rs.500 from Vanita is posted to her account by Rs.1,000. Date Particulars L. F. Debit Rs. Credit Rs. Vanitas A/c.Dr. To Purchase A/c (Being the rectification entry for excess credit to Vanitas A/c and excess debit to Purchase A/c.) 500 500
  • 16. (1) Error Regarding Posting Omission of Posting Posting Twice in an Account Posting of a Wrong Amount in an Account Posting in an Account on the Wrong Side Posting Wrong Amount on Wrong Side of an Account
  • 17. (a) Omission of Posting While posting the transaction recorded in journal or subsidiary books, if posting is omitted in any account by mistake, it is known as an error of omission of posting and this case the trial balance does not tally. e.g. Goods of Rs.6,000 purchased from Darshan is correctly recorded in the purchase book but posting in Darshan account is omitted. This error will be rectified by posting the amount on the credit side of Darshans A/c as under. Darshans account Dr. Cr. Date Particular J. F. Rs. Date Particular J. F. Rs. By being the amount posting omitted for goods purchased 6,000
  • 18. (b) Posting Twice in an Account Out of the two accounts affected, if in any one account posting is done on the correct side but twice by an error, the trial balance will not tally. E.g. Goods of Rs.7,000 sold to Santosh is recorded correctly in the sales book but by mistake it is posted twice in the account of Santosh. This error will be rectified by giving opposite effect in the account which is posted twice, by the amount of the transaction. Thus by writing Rs.7,000 on the credit side of Snatoshs A/c and the column of particulare by being an amount wrongly posted twice the error will be rectified.
  • 19. (c) Postin