Rectification of errors

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Transcript of Rectification of errors

Slide 1

RECTIFICATION OF ERRORS

Trial Balance(Verifies the arithmetical accuracy) may not Agree/tally

Because of some errors committed while recording/Classification stage

Errors are unintentional mistakes

The trail may agree ( even after some errors)as some does not affect the trial balance Concept

Errors can be of Two Types

Types of Errors (Sides/Impact Point of View)

Single Sided ErrorsDouble sided Errors

Error with only one Errors with both theSide(Dr/Cr) of Entry sides

Affect Trial Balance Do not affect Trial Balance

Principal Errors( Rules, Concepts)

Clerical Errors

Omission Errors Compensatory Error

Commission ErrorsTypes of Errors (by Nature)

Transaction in contravention of accounting principles

Error in recognizing Capital/Revenue Transactions

Does not affect the Trial BalancePrincipal Errors

Wages for construction of building, debited to wages A/c

Purchase of Fixed Asset debited to Purchases A/c

Regular repairs of building, debited to Building A/CExamples

Not considering a transaction

Full Omission Partial Omission

Both Aspects(Dr/Cr) Entry not posted

During Recording During Posting(not entered in Journal at all)

Not affect the Trial Balance Affect the Trial Balance.Omission Errors

Silly mistakes because of carelessness

Errors may relate to a wrong amount,Correct amount in Wrong Account/Side

While Journalizing, Ledger posting , Casting, Balancing or Carry forwarding

May/ may not affect the Trial BalanceGenerally these affect Trial Balance

Commission Error

Effect of errors is cancelled

The second error compensate the impact of the first error

Do not affect the Trial Balance

Compensatory Errors

Rectification method depends on the Timing of detection of an error

Before After Final AccountsTrail Balance (in next period) After Trial Balance (Before Final Accounts)Rectification of Errors

Double sided Errors- Rectified by a Rectifying Journal Entry

Single Sided Errors

Suspense A/c P&L Adj. A/c (After Tr. Bal.) (Next Period)Narration/Rectification statementWithout Suspense A/c(before Tr. Bal.)Rectification of Errors

Sales Book is Undercast by 1,500

If after Tr. Bal. Journal Entry : Debit : Suspense A/c Credit : Sales A/c

If detected before Tr. Bal.

Cr. Side(Sales A/c) - Undercasting of Sales book 1,500 Illustration (Single sided Error)

` 250 written off as depreciation on Machinery has not been debited to Depreciation Account

Goods purchased of ` 300 have bee posted to the debit of Supplier X.

Purchase of `67 has been posted to the Trade Payables Account as ` 60.Illustration (Single sided Error)

Pass the wrong entry

Reverse the Wrong Entry

pass the correct entry

pass the Rectification entry (comparing the second & third Entry). Rectification of Double Sided Error

The purchase of machinery for ` 2,000 has been entered in the purchases bookWrong Entry: Purchases Account Dr. 2,000 To Trade Payable 2,000Reverse Entry: Trade Payable Dr.2,000 To Purchases Account2,000Correct Entry:Machinery Account Dr. 2,000 To Trade Payable 2,000Rectifying Entry: Machinery Account Dr. 2,000 To Purchases Account2,000

Illustration

Rectifications done through P&L Adjustment A/c/Prior Period Items A/c(Errors ultimate effect on P&L A/c is considered)

Wages of ` 2,500 paid for the installation of machinery charged to wages account(detected next year)Rectification entryMachinery AccountDr. 2,500 To Profit and Loss Adjustment Account2,500

Errors (Detected in next Period)

Q.1. Errors of commission do not permit

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Q.2. If depreciation is excess charged by Rs.500 and closing stock is understated by Rs.500, the net profit will be _____ due to these errors

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Q.3. Sale of old furniture is erroneously entered in sales book. Rectification entry will be:

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Q.4. Which of the following errors will affect the trial balance?

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Q.5. In case trial balance does not agree, difference is put to

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Q.6. On purchases of old furniture, the amount spent on its repair should be debited to

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Q.7. Goods worth Rs.272 returned by Lala passed through the books as Rs.722. The rectification entry is

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Q.8. Commission paid to Mr. Dixit Rs.225 was posted twice to Commission account. The rectification is done by

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Q.9. Rectification of which types of errors requires opening of suspense A/c.

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Q.10 Rs. 51000 received from Mohan but credited to Sohan A/c. This is an error of __.

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