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 :
| Particulars | Dr |
| To Creditors To Under cast in Purchase Book | 1,000 500 |
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 :
| Particulars | Dr | Cr |
| To Overcast in Sales book | 300 | |
| 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 :
| Particulars | Cr |
| By Under cast in Return Outward book | 500 |
Error of Commission / error of recording
| Correct Entry | Dr | Cr | Wrong entry (Recorded entry) | Dr | Cr | Rectification Entry | Dr | Cr |
| Credit Sales of Rs.780 of Ajit was recorded as Rs.870. | ||||||||
| Ajit A/c To Sales A/c | 780 | 780 | Ajit A/c To Sales A/c | 870 | 870 | Sales A/c To Ajit A/c | 90 | 90 |
| Credit sales of Rs.780 to Raj was entered in the purchase book | ||||||||
| Raj A/c To Sales A/c | 780 | 780 | Purchase A/c To Raj A/c | 780 | 780 | Raj A/c To Purchase A/c To Sales A/c | 1,560 | 780 780 |
| Credit Sales of Rs.320 to Das was recorded as sales to Basu of Rs.230 | ||||||||
| Das A/c To Sales A/c | 320 | 320 | Basu A/c To Sales A/c | 230 | 230 | Das A/c To Sales A/c To Basu A/c | 320 | 90 230 |
Errors of Principle
| Correct Entry | Dr | Cr | Wrong entry (Recorded entry) | Dr | Cr | Rectification Entry | Dr | Cr | |
| Installation charge of Plant of Rs.500 has been debited to Repair Account. | |||||||||
| Plant A/c To Cash A/c | 500 | 500 | Repair A/c To Cash A/c | 500 | 500 | Plant A/c To Repair A/c | 500 | 500 | |
| Rs.800 spent on newly purchased car as registration charges debited to Misc. Expenses Account. | |||||||||
| Car A/c To Cash A/c | 800 | 800 | Misc.Exp.A/c To Cash A/c | 800 | 800 | Car A/c To Misc.Exp A/c | 800 | 800 | |
| Rs.500 paid as wages to bring furniture debited to wages account. | |||||||||
| Furniture A/c To Cash A/c | 500 | 500 | Wages A/c To Cash A/c | 500 | 500 | Furniture A/c To Wages A/c | 500 | 500 | |
| Rs.300 withdrawn for office uses has been debited to Drawings account. | |||||||||
| Cash A/c To Bank A/c | 300 | 300 | Drawing A/c To Bank A/c | 300 | 300 | Cash A/c To Drawing A/c | 300 | 300 | |
Errors of Principle.
| Correct Entry | Dr | Cr | Wrong entry ( recorded entry | Dr | Cr | Rectification Entry | Dr | Cr |
| Furniture for office purchased has been entered in Purchase Book of Rs.750 | ||||||||
| Furniture A/c To Cash A/c | 750 | 750 | Purchase A/c To Cash A/c | 750 | 750 | Furniture A/c To Purchase A/c | 750 | 750 |
| A sport equipment purchased for proprietor for Rs.250 has been debited to General Expenses A/c. | ||||||||
| Drawing A/c To Cash A/c | 250 | 250 | Gen. Exp.A/c To Cash A/c | 250 | 250 | Drawing A/c To Gen.Exp A/c | 250 | 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/c | 200 | 200 | Cash A/c To Ram A/c | 200 | 200 | Ram A/c To Bad Debt Recovery A/c | 200 | 200 |
Error of Omission
| Correct Entry | Dr | Cr | Wrong entry ( Recorded entry) | Dr | Cr | Rectification Entry | Dr | Cr |
| A cash sale of Rs.580 has not been entered in the books. | ||||||||
| Cash A/c To Sales A/c | 580 | 580 | Nil | Cash A/c To Sales A/c | 580 | 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
| Particulars | Dr | Cr |
| Sales A/c Dr | 200 | |
| To Suspense A/c | 200 | |
| Sales Book overcast by Rs.200 rectified. | ||
| Suspense A/c Dr | 300 | |
| To Sales A/c | 300 | |
| Sales Book undercast by Rs.300 rectified | ||
| Suspense A/c Dr | 500 | |
| To Purchase A/c | 500 | |
| Purchase book overcast by Rs.500 rectified | ||
| Suspense A/c | 10000 | |
| 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
| Particulars | Dr | Cr |
| Return Inward A/c Dr | 150 | |
| To Suspense A/c | 150 | |
| Sales Return Book under cast by Rs.150 rectified | ||
| Suspense A/c Dr | 500 | |
| 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
| Particulars | Dr | Cr |
| Bills Receivable A/c | 250 | |
| To Suspense A/c | 250 | |
| Bills Receivable Book is under cast by Rs.250 rectified | ||
| Bills Payable A/c Dr | 350 | |
| To Suspense A/c | 350 | |
| Bills Payable Book is overcast by Rs.350 rectified |
Rectification Journal Entries for Discount
| Particulars | Dr | Cr |
| Discount allowed A/c Dr | 50 | |
| To Suspense A/c | 50 | |
| Discount allowed is under cast by Rs.50 rectified | ||
| Discount allowed A/c Dr | 56 | |
| Discount Received A/c Dr | 65 | |
| 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
| Particulars | Dr | Cr |
| Travelling Expenses A/c | 100 | |
| 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/c | 400 | |
| 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
| Particulars | Dr | Cr |
| Furniture A/c | 10,000 | |
| To Profit & Loss Adjustment A/c | 10,000 | |
| Furniture purchased for Rs.10,000, charged to Office Expenses Account, now rectified | ||
| Kumar A/c | 12,000 | |
| 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/c | 10,000 | |
| To Raj A/c | 10,000 | |
| Purchase of Rs.5,000 from Raj has passed through Sales Day Book, now rectified | ||
| Machinery A/c | 500 | |
| 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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