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

Errors affecting the Trial Balance

Errors Doesn’t affecting the Trial Balance

Types of Errors (Sides/Impact Point of View)

Single Sided Errors Double sided Errors

Error with only one Errors with both the

Side(Dr/Cr) of Entry sides

Affect Trial Balance Do not affect Trial Balance

Principal Errors( Rules, Concepts)

Clerical Errors

Omission Errors Compensatory Error

Commission Errors

Types of Errors (by Nature)

Transaction in contravention of accounting principles

Error in recognizing Capital/Revenue Transactions

Does not affect the Trial Balance

Principal 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/C

Examples

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 Accounts

Trail 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)

1. ` 250 written off as depreciation on Machinery has not been debited to Depreciation Account

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

3. 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 book

Wrong Entry: Purchases Account Dr. 2,000

To Trade Payable 2,000Reverse Entry: Trade Payable Dr. 2,000

To Purchases Account 2,000Correct Entry:

Machinery Account Dr. 2,000 To Trade Payable 2,000Rectifying Entry: Machinery Account Dr. 2,000 To Purchases Account 2,000

Illustration

Rectifications done through “ P&L Adjustment A/c/Prior Period Items A/c

(Error’s 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 Account Dr. 2,500 To Profit and Loss Adjustment Account 2,500

Errors (Detected in next Period)

Q.1. Errors of commission do not permit

MCQs

Correct totalling of the balance sheet

Correct totalling of the trial balance

The trial balance to agree

None of the above

C

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

MCQs

Understated by Rs.500

Understated by Rs.1000

Overstated by Rs.1000

No effect

B

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

MCQs

Debit Sales A/c, Credit Furniture A/c

Debit Furniture A/c, Credit Sales A/c

Debit Debtor A/c, Credit Furniture A/c

Debit Sales A/c, Credit Debtor A/c

A

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

MCQs

Repairs to building wrongly debited to Building A/c

Total of Purchase Journal by ` 1,000 short

Freight paid on new machinery debited to Freight A/c

None of the three

B

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

MCQs

Suspense A/c

Drawing A/c

Capital A/c

Trading A/c

A

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

MCQs

Repair A/c

Furniture A/c

Cash A/c

Bank A/c

B

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

MCQs

Lala will be debited by Rs.450

Lala will be debited by Rs.272

Lala will be credited by Rs.722

Lala will be credited by Rs.272

A

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

MCQs

Writing 'Error in Posting' Rs.225 on credit side of Mr. Dixit A/c in Ledger

Passing a rectification entry in Journal Proper crediting Commission A/c by Rs.225

Writing 'Error in Posting' Rs.225 on credit side of Commission A/c in Ledger

Passing a rectification entry in Journal Proper debiting Commission A/c by Rs. 225

C

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

MCQs

Errors of principle

Complete omission

Partial omission

Errors of commission

C

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

MCQs

Errors of principle

Omission

Commission

Compensating

C

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