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[XI – Accountancy] 138
CHAPTER-
RECTIFICATION OF ERRORS
Introduction Accounts are prepared by accountant, a human being is likely to commit mistakes at time of recording and posting in the books. However, such errors are located after some time and should be corrected by passing corrective journal entry, which is known as rectification if errors. Learning Objectives : After studying this topic the students will be able to: Explain Types of Errors and their examples Rectify the Errors : Two i.e. Errors not affecting Trial Balance and One sided i.e. Errors which affect Trial Balance. To Explain Meaning and Utility of Suspense A/c Maintain Suspense A/c. Important : The errors whether affecting the Trial Balance or not must be detected and rectified. Need of Rectification
- For the preparation of correct Accounting Records.
- Preparation of P & LA/c with corrected figures to ascertain correct Profit or Loss.
- To find out the true financial position of the firm by preparing Balance Sheet with corrected figures.
139 [XI – Accountancy] Classification of Errors (on the basis of Nature) Type of Error with Meaning Sub-Types with Examples
1. Error of Omission (a) Error of Complete Omission (When a transaction is completely Goods sold to X on Credit but not recor- or partially omitted to be record ded in Sales Book. in the books) (b) Partial Commission Purchase machinery Rs. 5,000 in cash recorded in cash Book but not recorded in Machinery A/c II. Error of Commission (a) Error of Recording in the Book of Original Entry (These errors are caused due to Goods purchased from Ravi for Rs. 450, wrong recording of transactions, Goods as Rs. 540, in the Purchases Book wrong totalling of subsidiary (b) Wrong Totalling of Subsidiary Book books or Ledger A/cs, Wrong Example : Purchase Book has been posting and wrong carry forward) undercast (short totalled) by Rs.100. (c) Error in Totalling or Balancing of Ledger A/cs* Example : Creditors A/c has been balanced short by Rs. 500. (d) Error of Posting (i) Posting to the wrong side but correct account. Goods sold to X for Rs. 550, entered to the credit of X’s A/c instead of posting to the debit side of his account. (ii) Posting with wrong amount. (iii) Posting twice in an A/c/ (iv) Errors in posting to the wrong A/c but correct side don’t affect Trial Balance. (e) Error in carrying forward. Total of purchase book Rs. 2,500 is carried forward as Rs. 2050 III. Errors of Principal. (a) Treating capital items as revenue item (These errors are caused due to Example : Wages paid for the installation
141 [XI – Accountancy] Errors Affecting Trial Balance Shown by Star in the Table showing.
- Error in totalling of subsidiary books as undercast or over cast.
- Error in the balancing of ledger accounts.
- Error in posting to the correct Account but wrong amount.
- Error of partial ommission. Rectification of Errors When the errors are detected, these have to be rectified in the books of accounts. Rectification of errors depends upon. The type of error and The time of depiction of an error. Time of Depiction of an error means. ( i ) Errors of detected before the preparation of Trial Balance. ( ii ) Errors detected after preparing Trial Balance but before preparing final Accounts. ( iii ) Errors detected after preparing Final Accounts. Rectification of Errors detected after preparing Final Accounts is not in the syllabus. Hence we will discuss only type (i) and (ii) RECTIFICATION OF TWO SIDED ERRORS Two sided errors are those errors which affect two sides of Accounts. These errors don’t affect trial Balance as discussed earlier. These Errors are rectified by passing a Journal entry irrespective of the time of depiction. In other words their rectifying entry will be same whether (a) the error si depicted before Trial Balance or (b) after the preparation of Trial Balance but before the Final A/cs are prepared.
[XI – Accountancy] 142 Steps for Rectification ( 1 ) Locate the effect of Error on Different Accounts. ( 2 ) The Account showing excess credit should be Debited. ( 3 ) The Account showing excess Debit should be Credited. ( 4 ) The Account showing short Debit should be Debited. ( 5 ) The Account showing short Credit should be Credited. Examples (with Explanation) ( I ) When an account has wrongly been debited in place of another A/c. Rectification will be done by debiting the correct account and Crediting the A/c which was wrongly debited. Example : Machinery purchased for Rs. 10,000 has been debited to Purchases A/c Solution : Here two accounts are affected Machinery A/c is not debited hence its debit side is short by Rs. 10, whereas purchases A/c debited by mistake. Purchases A/c debit side is in excess by Rs. 10,000. While rectifying this mistake Machinery A/c will be debited by Rs. 10,000 because it was not debited earlier and Purchases A/c will be credited because it was wrongly debited. Rectifying Entry is Machinery A/c Dr. 10, To Purchases A/c 10, (For purchases of machinery wrongly debited to Purchases A/c) ( II ) When an account has wrongly been Credited in place of another account.
[XI – Accountancy] 144 (IV ) When there is an Excess Debit in one A/c and Excess Credit in another A/c. Example : Goods purchased from Mohan for Rs. 300 was recorded in Purchases Book as Rs. 3,000. Solution : Here Purchases A/c is Debited by Rs. 3,000 instead of Rs. 300, i.e. Rs. 2,700, more. Mohan’s A/c is also Credited by Rs. 2,700 more. Rectification will be done by debiting Mohan’s A/c and Crediting purchases A/c by Rs. 2,700, i.e., the entry in the reverse direction. Rectifying Entry Mohan Dr. 2, To Purchases A/c 2, (For Purchase of goods from Mohan for Rs. 300 wrongly entered Rs.3,000) Problem : Rectify the following Errors : (1) Rs. 5,000 Paid for furniture purchased has been debited to purchases account. (2) Wages paid Rs. 7,000 for installation of new machinery were recorded in wages account. (3) Goods sold to Hari Rs. 10,000 not recorded. (4) Rs. 2,500 received from Monu has been credited to Sonu A/c. (5) Rent paid Rs. 1,000 wrongly debited to Landlord Account. (6) Credit Purchase from Raman Rs. 15,000 were wrongly recorded in sales book. (7) Credit sales to Geeta Rs. 8,.800 were recorded as Rs, 8,
145 [XI – Accountancy] (8) Goods Rs. 5,000 withdrawn by proprietor has not been recorded. Solution : Error No. Particulars L.F. Dr. Rs. Cr. Rs.
- Furniture A/c Dr. 5, To Purchases A/c 5, (The furniture purchase wrongly debited to purchase A/c)
- Machinery A/c Dr. 7, To wages A/c 7, (The wages for installation machinery wrongly debited to wates A/c
- Hari Dr. 10, To Sales A/c 10, (The goods sold to Hari not recorded.)
- Sonu Dr. 2, To Monu 2, (The amount wrongly credited to Sonu instead of Monu)
- Rent A/c Dr. 1, To Landlord 1, (The rent paid but wrongly debited to landlord A/c)
- Purchases A/c Dr. 15, Sales A/c Dr. 15, To Raman 30, (The Credit purchase but wrongly credit to sale A/c.
- Geeta Dr. 800 To sales A/c 800 The Credit sales to Geeta Rs. but recorded 8000
- Drawings A/c Dr. 5, To Purchases A/c 5, The goods withdraw by Proprietor for personal use
147 [XI – Accountancy] Purchases A/c Date Particulars J.F. Rs. Date Particulars J.F. Rs. To Undercast of 150 purchase book Here debit side of the Purchase A/c was short therefore the rectification is done by debiting the A/c. Example 2 : Purchases Book is overcast by Rs. 300 Analysis Means total of the Purchases Book is in excess by Rs. 300 which is posted to the debit side of purchases A/c Hence purchases A/c is debited in excess by Rs. 300. No effect on any other A/c. Therefore to rectify this error Rs. 300 will be credited to purchases A/ c ( i.e. opposite side) Purchases A/c Date Particulars J.F. Rs. Date Particulars J.F. Rs. By Overcast of 300 Purchases Book Here debit side of the purchases A/c was in access, therefore the rectification is done by entering the amount on the opposite side i.e., Credit side of the Purchases A/c. Case II : Rectification of one Sided Error after Preparing Trial Balance When the errors are detected after the preparation of Trial Balance then every single sided error is rectified by passing a Journal entry through Suspense Account. For short Debit Income Account Debit that Account and Credit the Suspense A/c
[XI – Accountancy] 148 Excess Credit in one Account Debit that Account and Credit the Suspense A/c Short Credit in one AccountCredit that A/c and Debit the Suspense A/c Excess Debit in one AccountCredit that A/c and Debit the Suspense A/c Example : Hence for the same error as given in example No. in case I, the following Journal Entry will be passed. Rs. Rs. Purchases A/c Dr. 150 To Suspense A/c 150 (For undercast of purchase book, now corrected) Example 4 : Sales Book was undercast by Rs. 200 Analysis Sales book totalled short by Rs. 200 which is posted to the credit side of sales A/c. Therefore Sales A/c credit side is short by Rs. 200. Hence rectification will be done by crediting the sales A/c and Debiting the Suspense A/c by Rs. 200. Rs. Rs. Suspense A/c Dr. 200 To Sales A/c 200 (For undercast of Sales Book, now corrected) Note : When nothing is mentioned in the question about the time of detection of an error, the student are advised to rectify one sided errors through Suspense A/c. Problem : Rectify the following error ( A ) Without opening a Suspense A/c
[XI – Accountancy] 150 ( 6 ) Sales book overcast means sales A/c is credited is excess by Rs. 2,000. Hence rectification will be done by debiting sales A/c by 2,000. ( 7 ) Sales Return Book total undercast by Rs. 4,000 means sales return A/c is a debited short by Rs. 4,000 Hence rectification will be done by debiting sales Return A/c by 4,000. ( 8 ) Purchase Return Book undercast by Rs. 5,000 means purchase Return A/c is credited short by Rs. 5,000. Hence rectification will be done by crediting the purchase Return A/c by Rs. 5, ( B ) By opening suspense A/c. Rectifying Journal Entry Error No. Particulars L.F. Dr. Rs. Cr. Rs.
- Mohit Dr. 5, To Suspense A/c 5, (For cash paid to Mohit committed to be posted to his A/c)
- Mohit Dr. 4, To Suspense A/c 4, (for Mohit A/c was debited with excess amount)
- Suspense A/c Dr. 45, To Mohit 45, (fro Mohit A/c was debited with excess amount)
- Mohit, Dr. 10, To Suspense A/c 10, (For posting to Mohit’s A/c was done on wrong side
- Mohit Dr. 5, To Suspense A/c 5,
151 [XI – Accountancy] (For posting made with wrong wrong amount and wrong side)
- Sales A/c Dr. 2, To Suspense A/c 2, (For overcast of sales Book rectified)
- Sales Return A/c Dr. 4, To Suspense A/c 4, (For undercast of sales return book rectified)
- Suspense A/c Dr. 5, To Purchase Return A/c 5, (For undercast of purchase return Book, rectified) Suspense Account and its Disposal In the chapter of Trial Balance we have learn about the Suspense A/c Important When inspite of all the efforts the Trial Balance does not tally, the difference is put to a newly opened account named Suspense A/c. Suspense A/c is an imaginary account, opened temporarily for the purpose of reconciling a Trial Balance. Later on when the errors affecting the Trial Balance are located, rectification entries are passed through the Suspense A/c. When all the errors are located and rectified, the Suspense A/c will be auto material closed i.e., it will show zero balance. But if suspense A./c still shows a balance it will indicate that some errors are still to be discovered and rectified. Problem : An accountant of a trading concern could not agree the Trial Balance. There was an excess credit of Rs. 100 which he transferred to the suspense A/c The following errors were subsequently discovered. ( 1 ) Received Rs. 550 from X, were posted to the debit of his account.
153 [XI – Accountancy] Dr. Suspense A/c Cr. Date/Error Particulars J.F. Rs. Date Particulars J.F. Rs. To Difference in 100 (4) By Salary A/c 1, the Trials Balance (5) (i) By Purchases A/c 400 (ii) By Sales A/c 400 (1) To X 1, (2) To Purchases A/c 100 Balance c/d Nil (3) To Return A/c 100 (4) To Discount A/c 400 1,800 1, Since the Balance of the suspense A/c is nil, indicates that all the errors have been certified. Suggested methodology Discussion Explanation method is suggested.
