Accountancy

Class XI

N.K.Verma

What to learn Meaning of Rectification

Types of Rectification-

i. Two sided Errors

ii. One sided Errors

Suspense Account

Utility of suspense Account

Rectification through suspense account

Disposal of suspense account

Meaning of Rectification

Mistakes are the result of activities. If we dosomething we make a mistake.

Errors in accounting are result of ignorance ofaccounting Rules (knowingly and unknowingly).

We cannot use alteration of accounts as it may leadto lack in reliability of accounts.

If a correction is seen after a gap of time anyalteration to it may lead to disturbance of allaccounting entries made after that.

RectificationRectification depends on stage when the errors are

rectified:- If the error is traced before posting to the Ledger, it may be

corrected by neatly crossing out the wrong figure by a singleline and writing the correct figure above the crossed figure.

Even if a wrong figure is posted in the ledger accounts, maybe corrected in the same manner.

If an error is traced after some time it shouldbe corrected by passing a suitable Journalentry, called the rectifying entry

Types of Rectification-Two sided Errors (which do not affect Trial Balance)

These errors affect two accounts together. Omission to pass an entry

Wrong recording of a transaction

Posting to the wrong account

Errors of principle

These errors can be rectified just by passing a Journal entry (with debit of one account and crediting the other)

Now we will discuss the rules to be observed while passing the entries to rectify these errors

The account showing an excess debit shouldbe credited in the rectifying entry.

The account showing short debit should bedebited in the rectifying entry.

The account showing an excess creditshould be debited in the rectifying entry.

The account showing the short creditshould be credited by the rectifying entry.

Machinery purchased for Rs. 10,000 has been debited to Purchases A/c

Rectifying Entry: Method one: Machinery A/c Dr. 10,000To Purchase A/c 10,000 (For

purchase of machinery wrongly debited to Purchase A/c)

Method Two: Actual entry that was to be passedMachinery A/c Dr. 10,000

To Cash 10,000Entry which is actually passed

Purchases A/c Dr. 10,000To Cash 10,000

Correction that has to be made with net impact isMachinery A/c Dr. 10,000

To Purchase A/c 10,000 (For purchase of machinery wrongly debited to Purchase A/c)

Types of Rectification- One sided Errors (which affect Trial Balance)

These errors affect only one account

When a subsidiary book is undercast(totalled less) or overcast (totalled in excess)

When posting to an account is altogether omitted

When the posting is made on the wrong side of an account

When the posting of a wrong amount is done

Rectification of these errors can be done in accordance with the time of rectification i.e.

1. When the errors are located before the closing of accounts.

2. When the errors are located after the closing of accounts.

When the errors are located before the closing of accounts.

Rectification at this stage does not required rectification entries. Only the amount need to be adjusted in the account just by writing the amount on debit side or credit side of the account which is affected by the error.

Examples:

When the errors are located after the closing of accounts.

(Errors located and rectified after the closing of accounts)

These errors are corrected by passing journal entries.

As only one account is affected a suspense A/c is used to complete the entries.

MEANING WHEN THE TRIAL BALANCE IS NOT TALLIED WITH

BEST EFFORTS A NEW ACCOUNT IS OPENED AND IS NAMED AS SUSPENSE ACCOUNT.

THIS IS DONE TO AVOID DELAY IN ACCOUNTING PROCESS(PREPARATION OF FINAL ACCOUNTS)

IF DEBIT SIDE OF TRIAL BALANCE EXCEEDS CREDIT SIDE THE BALANCE IS PUT ON THE CREDIT SIDE AND VICE VERSA.

DISPOSAL OF SUSPENSE ACCOUNTSuspense account is an imaginary account.

It is used as a temporary measure

It is used to reconcile a trial balance

It ends with the location of errors.

To dispose rectification entries are passed with the help of suspense account.

Point to be noted for rectification entries Suspense account is created for those entries which

affect the trial balance.

If the account which is to be rectified is debited in the rectifying entry, suspense account will be credited to complete the correct entry and vice versa.

Questions on the topic

Wages paid to Mohan for erecting a machine should be debited to

A) wages A/c

B) Machine A/c.

C) Mohan A/c

D) Cash A/c

Sale of typewriter that has been used in the office should be credited to A) Sales A/c

B) Cash A/c

C) Capital A/c

D) Typewriter A/c.

Suspense A/c in the trial balance will be entered in the a) Manufacturing A/c

b) Trading A/c

c) Profit & Loss A/c

d) Balance Sheet.

Rs. 1500 received from Bahadur whose account was previously written as a Bad debt should be credited to

a) Bahadur A/c

b) Bad debt recovered A/c.

c) Suspense A/c

d) Cash A/c

Rent paid to landlord amounting to Rs. 500 was credited to Rent A/c with Rs. 5000. In the rectifying entry rent A/c will be debited with

a) 5000

b) 500

c) 5500.

d) 4500

Purchased goods from Gopal for Rs. 3600 but recorded as Rs. 6300 to the debit of Gopal. Gopal A/c will be debited with

a) 9900

b) 2700.

c) 3600

d) 6300

Purchased goods from Gopal for Rs. 3600 but recorded 6300 to the debit side of Gopal. Gopal A/c will be credited with

a) 9900.

b) 2700

c) 3600

d) 6300

Suspense A/c isa) Real a/c

b) Personal a/c

c) Nominal a/c

d) Any of these.

Errors are a) Undetected mistakes

b) Intentional mistakes

c) Frauds

d) Unintentional mistakes.

A watch purchased for Rs. 800 for the son of a partner was debited to gen. exp. A/c with Rs. 80. in the rectifying entry drawings a/c will be debited with

a) 880

b) 720

c) 800.

d) 80

The end