Rectification of Erros

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  • 8/6/2019 Rectification of Erros


    Rectification of Errors

    y Financial Statements should show true and fair view of

    affairs of the business.


    Book Keepers and accountants puts efforts but stillpossibility of errors.

    y Identifying and locating of such errors is essential as many

    people use these statements.

    y Identify/ Locate--- rectify

  • 8/6/2019 Rectification of Erros


    Meaning of Errors

    y Un intentional commission or omission of amounts and

    accounts in the process of recording the transactions .


    Omission Means: error occurs because of not doing something or doing some thing incompletely.

    y Commission: here error is committed because lack of

    concentration I,e you supposed to one thing but you do

    something different

  • 8/6/2019 Rectification of Erros


    y What is rectification of Errors

    y Correcting the errors in the records by proper technique.

    y What is the objective of Rectification of Errors?

    y To prepare correct accounting records.

    y To Prepare correct financial statement

    P& L and Balance Sheet

  • 8/6/2019 Rectification of Erros


    Types of Errors

    y Errors of omission: a transaction that is not recorded

    entered partially or not at all entered


    Errors of Principle:GAAP is not followed

    y Compensating Errors: Purchases Register total is more and SalesRegister Total is more by the same amount.


    Errors of Commission: ( not disclosed by Trial Balance)y a transaction that is calculated incorrectly. One example of an error of

    commission is subtracting a figure that should have been added.

    wrong posting, Posting on wrong side posting wrong amount

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    y Duplicating Error:

    y An error of duplication arises when the same transaction has

    been recorded twice I the books of original entry, and hence

    posted two times in the ledger.y The trial balance does not reveal such errors.

    y Suspense Account:

    y An account which is opened when the trail l balance does not

    tally. The difference in the trial balance is transfered tosuspenseAccount.

  • 8/6/2019 Rectification of Erros


    Examples of error of Commission

    y Transaction not entered in Journal.

    y Wrong entry like wrong amount or wrong account.

    y Omission to post a transaction

    y Posting twice an entry.

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    y Rectification of Errors

    Errors affecting Errors affecting two

    one account only or more accounts

    (affect agreement of Trial Balance) (do not affect agreement of Trial Balance)

    i. Errors of Posting i. Errors of Posting to wrong account

    ii. Errors of Casting ii. Errors of omission

    iii. Errors of Carry forward

    iv. Errors of omission of balance of iii. Errors of principle

    any account in the trail balance

  • 8/6/2019 Rectification of Erros


    When the errors can be discovered

    y Before preparation of Trial Balance.

    y After T.B but before FinalAccounts

    y After preparation T. B and FinalAccounts

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  • 8/6/2019 Rectification of Erros


    y 1. Errors which occurs simultaneously in two accounts causing a shortdebit in one and excess debit in another or an excess credit in one and

    a short credit in another account

    y Cash Sales Rs 5000/-

    CashAccount Dr 5000

    To Hari PriyasA/c 5000

    i. More credit to Hari Priya

    ii. Less Credit to Cash sales

    correction: Hari PriyasA/c ---------- Dr 500

    To Cash SalesA/c 5000

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  • 8/6/2019 Rectification of Erros


    y 3.An error which occurs in two accounts due to omission ofrecording the transaction in a subsidiary book .

    y Purchase s Rs 500 fromA omitted to be recorded.

    y Pass an entry for correction:

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    y 3. Making further debit or credit entry in the account

    y affected putting the difference in Suspense:

    y Example: Depreciation Rs 1,000 is shown as 100

    y In the depreciation a/c it will be shown as

    y To Wrong posting

    y of Rs 1,000 as 100 corrected Rs 900

    y If there is difference in the trial balance because of this


    y Depreciation A/c Dr 900

    y To Suspense A/c

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    y Rectification of Errors when there is no Suspense


    y Rectification is made without journal entry.

    y This method is followed when as a result of the error the trial balance

    disagree and the difference has not been transferred to SuspenseAccount.

    y Example: Salary Paid Rs 20,000 is entered as Rs 2000in salariesAccount:

    y ------- Set right by debiting Rs 18,000 in salary account

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    Rectification of Errors when there is Suspense Account:

    y when it is not possible to locate the error before preparing

    the final accounts and preparation of the final account can not

    be delayed.

    y The difference in trail balance is transferred to suspense

    Account and carried forward to the next year. When errors

    are located the rectifying entries will be passed.

    y After rectification suspense account will be automatically


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    Rectification after final accounts

    y A Profit & Loss AdjustmentAccount is opened and

    rectification are passed through the same.

    y Nominal accounts affected by the rectification of errors are

    not touched at all.y Balance of this account transferred to CapitalAccount.

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    y The following errors were committed by theAccountant of Geetha Dye Chemicals:

    a. Cash Rs 350 paid to Triman Chemicals posted as Rs 530.

    b. Purchase of Stationery worthR

    s 150 remained un posted from the cash book.c. Rs 2,60 paid for purchase of new office furniture was charged to office expenses


    d. Credit Sales to Trivedi & Co ofRs 300 was posted to the credit of their account.

    e. A purchase ofRs 420 from Maruti & Co , was passed through the Sales Day Book as

    Rs 240.

    How do you rectify these errors assuming that.

    i. They were detected before preparing the Trial Balance

    ii. They were detected after preparing Trial Balance but before final accounts(

    difference being taken to SuspenseAccount)

    iii. Detected after final accounts( narration to journal entries not required)

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    y Rectify the following errors

    y An amount of Rs 600 withdrawn by the proprietor has been debited

    to salariesA/c

    y Furniture purchased Rs 500 has been wrongly debited to purchases



    An amount of Rs 300 spent on repairs to machinery has beenwrongly debited t MachineryA/c

    y An amount of Rs 400 received on sale of old machinery has been

    credited to sales account.

    y A Sum of of Rs 200 received from Rakesh has been credited Rajesh

  • 8/6/2019 Rectification of Erros


    y How will you rectify the following errors discovered before

    preparation of the Trial Balance.


    s 1,000 spent for repairs of buildings has been posted to buildingA

    ccountb. A sale ofRs 730 to Mohinder Singh has been entered in the Sales Book as Rs 370.

    c. Goods worth Rs 500 Purchased from Raju have been omitted to be recorded in

    the books.

    d. Rs 400 paid as salary to a clerk has been debited to his personal account.

    e. Rs 75 discount allowed by a creditor has been debited to discount


    f. The total of sales Book has been added Rs 100 too much

    g. Office furniture purchased fro Rs 1,800 has been passed through the

    Purchases Book.

  • 8/6/2019 Rectification of Erros


    y i) Errors detected before preparing the Trial Balance



    Particulars LF Dr Rs Cr Rs

    a Credit Triman Chemicals RS 180(530-350)

    b Debit Stationery Account Rs 150

    c Office FurnitureA/c Dr

    To Office ExpensesAccount



    d Debit Trevedi & CosAccount 600

    (300 for cancelling the wrong credit and Rs 300 for the proper


    e SalesAccount Dr

    To Maruti & CoAccount( For cancelling the wrong credit given to Sales Account)



    f Purchases Account Dr

    To Maruti & CoAccount

    ( For the correct entry)



  • 8/6/2019 Rectification of Erros


    y ii) Errors detected after preparing the Trial Balance but before preparing the final




    Particulars LF Dr Rs Cr Rs

    a Suspense Account Dr.

    To Triman ChemicalsA/c (530-350)



    b Stationery Account Dr.

    To SuspenseAccount



    c Office FurnitureA/c Dr

    To Office ExpensesAccount



    d Trevedi & CosAccount Dr

    To Suspense A/c(300 for cancelling the

    wrong credit and Rs 300 for the proper debit)



    e SalesAccount DrTo Maruti & CoAccount

    ( For cancelling the wrong credit given to Sales Account)


    f Purchases Account Dr

    To Maruti & CoAccount