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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