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Chapter 9
Types of Errors:
Errors of Principle : When a transaction is recorded in contravention of accounting principles like
recording the wrong type of account, it is an error of principle. There is no effect on the trial
balance since the amounts are placed on the correct side.
Clerical Errors : Errors arise because of mistake committed in the course of the accounting work
(i) Errors of Omission : If a transaction is completely or partially omitted from the books of
account, it will be a case of omission.
(ii) Errors of Commission : It includes posting of wrong amount , posting on the wrong side ,
posting to wrong Account, wrong totaling , recording of wrong amount in the subsidiary
books wrong , it will be a case of “errors of commission”. It includes all types of errors
excluding Error of Principle and Omission.
(iii) Compensating Errors : If the effect of errors committed hide the effects of the other errors ,
the errors will be called compensating errors.
There are some errors which affect one side of an account or which affect more than one account
in such a way that it is not possible to pass a complete rectification entry. There are some errors
which can be corrected, by making rectification statement. The general rule that errors affecting
two accounts can always be corrected by a journal entry is not always valid.
Rectification of Errors can be done :
(a) Before preparation of Trial Balance
(b) After Trial Balance but before the final accounts are drawn
(c) After Final Accounts i.e., in the next accounting period.
(a) Before Trial Balance : One sided errors can be rectified by recording a statement.
(b) After Trial Balance : All errors will be rectified by recording a Journal entry. In case of
unbalanced entry the help of Suspense A/c should be taken to balance the same.
(c) After final Accounts : If the errors are not rectified before the preparation of Final Accounts
then they should be rectified in the next accounting period. Since these errors are related
to the previous year the rectification of these errors will affect the profit of the previous
year ultimately affecting the Capital Account as profit of the year is transferred to the
Capital A/c. All those Accounts affecting the Profit / Loss of the last year [i.e. all accounts
appearing in Trading & Profit & Loss A/c] should be replaced with Profit & Loss Adjustment
A/c. After all rectification entries balance in Profit & Loss Adjustment A/c should be
transferred to Capital A/c.
(i) Profit & Loss Adjustment A/c Debit means last years Profit which had been shown
more after rectification has now been shown less.
(ii) Profit & Loss Adjustment A/c Credit means last years profit which had been shown
less after rectification has been shown more.
Rectification of Errors
