13 Rectification of Errors

Objectives 

• To classify the errors in accounting

• To understand the steps to rectify the errors- 

• Before preparing trial balance 

• Before preparation of final accounts 

• After preparation of final accounts 

• To pass rectification entries for- 

• One sided errors 

• Errors affecting two or more accounts 

Introduction

• Make errors is a human nature. Errors that are committed in various stages of accounting cycle have to be identified and rectified.

• This is to ensure the correctness of the figure shown by financial statements. 

Types of Errors 

Errors of Principle 

• If the basic accounting concepts, conventions, principles, rules are not followed , it is an error of principle.

• Capital and revenue items 

• Improper valuation

• Erratic provisioning 

Errors of Omission 

• If the transaction is omitted either in the journal or subsidiary book or in the ledger, it is known as an 'error of omission'.

Errors of Commission 

• Error of Commission means doing something that should not have been done. 

• An error of posting may occur in these ways. 

• This error may or may not affect Trial Balance. 

Error of Duplication 

• If a transaction has been recorded more than once, it is known as an 'Error of Duplication'. 

• It will not affect the trial balance as we have made entries for corresponding debits and credits of equal amount. 

Effect of Errors on Trial Balance 

Stages in Rectification of Errors 

• After Preparation of Final Accounts

• Errors affecting those accounts which appear in Trading Account / Profit and Loss Account must be rectified using profit and Loss Adjustment Account.

• This becomes necessary because the error done in the last financial period should not affect the financial status of the next period. 

Examples

• Sales to Vimala for Rs.5,000/- was posted to the credit of her A/c. 

• Sales to Vimala should have been posted to debit side of her A/c. 

• So, to cancel the wrong credit of Rs.5,000/-, debit Vimala's A/c with Rs.5,000/-. 

• To give the actual effect, debit Vimala's A/c with another Rs.5,000/- 

In Practical Manner 

Correct entry -

• Vimala a/c       Dr. 5000 
• To Sales a/c         5000 

Written the wrong entry as -

• Vimala a/c Dr. 5000 
• Sales a/c    Dr. 5000 

• Proof 

Rectifying Entry 

• To cancel that wrongly credited in wrong entry should be delete it. For that debit that account once with amount. Add the same amount with that once to get the correct entry. 

• To Vimala a/c  5000
• To Sales a/c     5000 

Behalf of this, suspense a/c will rise in Trial balance:- 

• Suspense a/c Dr.10000

Now to cancel the Vimala a/c in credit and to place Vimala a/c in debit as correct one, 

Finally Remaining 

• Vimala a/c        Dr. 5000 
• To Sales a/c           5000 

Practice this kind of method to solve any Errors in entries. This is the step by step procedure.