Rectification of Errors

Rectification of Errors

In this part, we discuss about various types of errors that may creep in during recording, casting, posting of transactions, and the rectification entries required at various stages

  • Errors in Books of Accounts
  • Rectification of errors
  • Suspense Account
  • Rectification before Trial Balance
  • Rectification after Trial Balance
  • Rectification after Final Accounts

Errors in Books of Accounts

Errors may occur in preparation of books of account due to arithmetical mistakes, accounting principle mistakes, casting or balancing etc. These errors should be properly rectified.

Types of Errors

  • Error of Omission: Such error occurs when a transaction is omitted either wholly or partly in the books of original entry. Such error does not affect Trial Balance.
  • Errors of commission: Such error occurs when a transaction is recorded incorrectly either wholly or partly, (e.g. wrong casting, wrong recording, wrong posting, wrong carrying forward, wrong balancing etc.). The error of recording does not affect the trial balance, while the error of casting and carrying forward affect the trial balance. (e.g. a credit sale of Rs.2,132 was posted as Rs.2, 312).
  • Errors of Principle:  Errors committed due to wrong application of the principles of Accounting. (E.g. Asset purchased is recorded in Purchase account).
  • Compensating Errors: Whenone error is compensated by another error of opposite nature. (E.g. Purchase books and sales books both are under cast by Rs.500).
  • Errors of Mis-posting: Amount posted to a wrong ledger. It will not disturb the agreement of the trial balance but will affect respective ledger accounts.
  • Errors of multiple entries: If both aspects of transaction are entered more than once in the books of original entry, the trial balance will still agree but the balances of individual ledgers account will be wrong.
  • Totalling of subsidiary books: If the total of a subsidiary book is wrong, or wrongly carried forward. In such case the trial balance will disagree.
  • Miscellaneous errors: Sometimes errors of other nature are incurred which may or may not affect agreement of Trial Balance, but may affect individual ledger balances.

Suspense Account

If the two sides of trial balance do not agree after transferring of all ledger accounts including cash and bank account, even after scrutiny, it implies that there are certain one-sided errors in the books of account.

The amount of difference in the Trial Balance is temporarily put in an account known as “Suspense Account”.

If the debit side of trial balance exceeds the credit side, the difference in the trial balance is transferred to the credit side of the Suspense Account and vice-versa.

Suspense Account is a temporary account. When all the errors affecting the trial balance are located and rectified the suspense account will be automatically balanced and closed.

Types of Errors not reflected in Trial Balance : The following types of errors will not affect Trial balance, i,e the Trial Balance would still tally.

  • Omission of any entry altogether (omission to record / post the transaction)
  • Making entry in wrong subsidiary book
  • Posting of an amount in wrong account (correct amount posted in correct side)

Steps of locating errors

All errors, even of small amount, must be located. As difference of small amount  may be net effect of many errors.

  • Check up Trial Balance totals, posting of amount in correct side, posting of all balance of all ledger accounts, particularly Cash (including Petty Cash) & Bank balances in correct side.
  • Check the Trial Balance and ledger balance again to look for similar ledger balance (omission of any ledger account) or half the amount (posting in wrong column) in Trial Balance.
  • Check the totaling and balancing of ledger accounts, carry forward of page totals to the next page etc.
  • Casting of figures from subsidiary books to main ledger book
  • If the difference is still not completely resolved, check the posting in ledger thoroughly (correct amount, correct side)

Rectification of Errors

Errors should not be corrected by overwriting or erasing the old figure and writing new figure. Error, if immediately located after writing, before totaling, casting or posting, may be clearly crossed and neatly written again. But errors located after some other work has progressed, or casting / posting made into ledger, should be corrected Rectification Entry, through Journal entry or otherwise (in cases of one sided errors).

The errors are rectified through passing of necessary rectification entries. To arrive at the rectification entry, create a Table with 3 sections. In first section, write the correct entry (the entry that should have been passed in the books). In the second section, write the wrong entry (the entry that have already been passed in the books). In the third section, write the derived rectification entry (this is the difference between the wrong and correct entry). The wrong entry in the second section and the rectification entry in the third section would result the correct entry in the first section

 Stages of Rectification

  • Rectification of error Before preparation of Trial Balance
  • Rectification of One Sided Error : To rectify one-sided error, journal entry can not be passed. Only the relevant ledgers are either debited or credited.
  • Rectification of Two Sided Error : To rectify two-sided error suitable journal entry is passed.
  • Rectification of error After preparation of Trial Balance but before the preparation of Final Accounts
  • Rectification of One Sided Error : To rectify one-sided error, journal entry is passed via Suspense Account.
  • Rectification of Two Sided Error : To rectify two-sided error, suitable journal entry is passed.
  • Rectification of error After preparation of Final Accounts
  • Rectification of One Sided Error : To rectify one-sided error, journal entry is passed via Suspense Account.
  • Rectification of Two Sided Error : In case of two-side error, As Final A/c s prepared, all Nominal Accounts are closed by transferring to Trading and Profit & Loss Account. Real and Personals Accounts are carried forward in the next accounting year.
  • Suspense A/c : Suspense A/c, if any, is carried forward in the next accounting year. If it has debit balance, it will appear in the Balance Sheet under current assets, if it has credit balance, it will appear in the Balance Sheet under current liabilities. Errors in Nominal Accounts are rectified by the “Profit & Loss Adjustment Account”.

Rectification before Trial Balance preparation

Some errors may be rectified before preparation of Trial balance

Purchase Day Book is cast as Rs.1,000 in place of Rs.1,500.  

Purchase book is under cast by Rs.500. To rectify the error purchase account will be debited by Rs.500. After rectification, the Debit side of Purchase Account will be :

To Creditors To Under cast in Purchase Book1,000 500

Sales Day Book is cast as Rs.2,000 in place of Rs.1,700.

Sales Book is overcast by Rs.300. To rectify the error sales account will be debited by Rs.300. After rectification, the Sales  Account will be :

To Overcast in Sales book300 
By Debtors 2,000

Return outward book is under cast by Rs.500.

To rectify the error Return outward account will be credited further by Rs.500. After rectification, the Return Outward  Account will be :

By Under cast in Return Outward book500

Error of Commission / error of recording

Correct EntryDrCrWrong entry (Recorded entry)DrCrRectification  EntryDrCr
Credit Sales of Rs.780 of Ajit was recorded as Rs.870.
Ajit A/c To Sales A/c780    780Ajit A/c To Sales A/c870  870Sales A/c To Ajit A/c90  90
Credit sales of Rs.780 to Raj was entered in the purchase book
Raj A/c To Sales A/c780    780Purchase A/c To  Raj A/c780    780Raj A/c To Purchase A/c To Sales A/c1,560    780 780
Credit Sales of Rs.320 to Das was recorded as sales to Basu of Rs.230
Das A/c To Sales A/c320    320Basu A/c To Sales A/c230    230Das A/c To Sales A/c To Basu A/c320  90 230

Errors of Principle

Correct EntryDrCrWrong entry (Recorded entry)DrCrRectification  EntryDrCr
Installation charge of Plant of Rs.500 has been debited to Repair Account.
Plant A/c To Cash A/c500  500Repair A/c To Cash A/c500  500Plant A/c To Repair A/c500  500
Rs.800 spent on newly purchased car as registration charges debited to Misc. Expenses Account.
Car A/c To Cash A/c800  800Misc.Exp.A/c To Cash A/c800  800Car A/c To Misc.Exp A/c800  800
Rs.500 paid as wages to bring furniture debited to wages account.
Furniture A/c To Cash A/c500  500Wages A/c To Cash A/c500  500Furniture A/c To Wages A/c500  500
Rs.300 withdrawn for office uses has been debited to Drawings account.
Cash A/c To Bank A/c300  300Drawing A/c To Bank A/c300  300Cash A/c To Drawing A/c300  300

Errors of Principle.

Correct EntryDrCrWrong entry ( recorded entryDrCrRectification  EntryDrCr
Furniture for office purchased has been entered in Purchase Book of Rs.750
Furniture A/c To Cash A/c750  750Purchase A/c To Cash A/c750  750Furniture A/c To Purchase A/c750  750
A sport equipment  purchased for proprietor  for Rs.250 has been debited to General Expenses A/c.
Drawing A/c To Cash A/c250  250Gen. Exp.A/c To Cash A/c250  250Drawing A/c To Gen.Exp A/c250  250
Rs.200 received from Ram against a debt previously written off has been credited to his account.
Cash A/c   To Bad Debt Recovery A/c200  200Cash A/c To Ram A/c  200  200Ram A/c To Bad Debt Recovery A/c200  200

Error of Omission

Correct EntryDrCrWrong entry ( Recorded entry)DrCrRectification  EntryDrCr
A cash sale of Rs.580 has not been entered in the books.
Cash A/c To Sales A/c580  580Nil  Cash A/c         To Sales A/c580  580

Rectification after Trial Balance preparation

Rectification after preparation of Trial Balance but before preparation of Final Account.

The Difference of Trial balance is transferred to Suspense Account. So, rectification entries made after preparation of Trial Balance should be made by a Journal Entry, through Suspense Account. After passing all the rectification entries, the balance of Suspense Account should become zero.

Rectification Journal Entries for Sales & Purchase Books

Sales A/c  Dr200 
To Suspense A/c 200
Sales Book overcast by Rs.200 rectified.
Suspense A/c  Dr300 
To Sales A/c 300
Sales Book undercast by Rs.300 rectified
Suspense A/c  Dr500 
To Purchase A/c 500
Purchase book overcast by Rs.500 rectified
Suspense A/c10000 
To  Sales A/c 5000
To  Purchase A/c 5000
A sale of Rs.5,000 passed through Purchase Day Book (the customer account had, however been correctly debited) now rectified

Rectification Journal Entries for Sales Return &  Purchase Return Books

Return Inward A/c  Dr150 
To Suspense A/c 150
Sales Return Book under cast by Rs.150 rectified
Suspense A/c  Dr500 
To Return Outward A/c 500
Purchase Return book is under cast by Rs.500 rectified

Rectification Journal Entries for Bills Receivable & Bills Payables Books

Bills Receivable A/c250 
To Suspense A/c 250
Bills Receivable Book is under cast by Rs.250 rectified
Bills Payable A/c  Dr350 
To Suspense A/c 350
Bills Payable Book is overcast by Rs.350 rectified

Rectification Journal Entries for Discount

Discount allowed A/c  Dr50 
To Suspense A/c 50
Discount allowed is under cast by Rs.50 rectified
Discount allowed A/c  Dr56 
Discount Received A/c  Dr65 
To Suspense A/c 121
Discount allowed Rs.56 posted to the credit of discount received account as Rs.65, now rectified

Miscellaneous Rectification Journal Entries

Travelling Expenses A/c100 
To Suspense A/c 100
(Travelling Expenses of Rs.100 entered in the Cash Book, but not posted in the ledger, now rectified)
Suspense A/c [42-24]18 
To General Expenses A/c 18
(General Expenses of Rs.24 was posted as Rs.42, now rectified)
Suspense A/c400 
To Ram A/c To Bikram A/c 200 200
(Rs.200 received from Ram has been debited to Bikram, now rectified.)

Rectification after Final Accounts preparation

Sometimes, the errors are not located and Final Accounts are prepared, by carrying the Balance in Suspense Account to next period. If during the next period, the error is located relating to any Revenue Account, the rectification Journal entry would be made through Profit & Loss Adjustment A/c (or Prior Period A/c), instead of affecting the revenue account, as that would distort the P L Account for the next year.

However, errors related to Personal / Real Accounts may be rectified through Suspense Account, as usual.

After Final Accounts are prepared, the Revenue Accounts are all closed by transferring the balance to Profit & Loss. So, any rectification entry involving Revenue Account is to be routed through Profit & Loss Adjustment Account

Journal Entries for Rectification after preparation of Final Accounts

Furniture A/c10,000 
To  Profit & Loss Adjustment A/c 10,000
Furniture purchased for Rs.10,000, charged to Office Expenses Account, now rectified
Kumar A/c12,000 
To  Profit & Loss Adjustment A/c 12,000
Sale of Rs.6,000 to Kumar passed through Purchase Day Book, now rectified
Profit & Loss Adjustment A/c10,000 
To  Raj A/c 10,000
Purchase of Rs.5,000 from Raj has passed through Sales Day Book, now rectified
Machinery A/c500 
To  Profit & Loss Adjustment A/c 500
Wages Rs 500, paid for installation of machinery charged to Wages Account , now rectified

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