Introduction• When the business transactions are recorded in the books of

accounts there remains a possibility of accounting errors. It may be because of hastiness in writing, negligence, oversight or incomplete knowledge of the principles of accountancy. Some times in order to manipulate the books of accounts, errors are committed intentionally.

• Irrespective of whether the accounting errors are committed innocently or intentionally they cannot be rectified by erasing with the help of an eraser. Necessary accounting effects are to be given in accounts in order to rectify these errors. Sometimes in an error affects two accounts, in order to rectify the same, a journal entry is passed which is known as a rectification entry and it is recorded in journal proper.

• Generally two principles should be taken into consideration to rectify the accounting errors.

Undo what is wrongDo what is correct.

• Let us understand this point with the help of an illustration.

Rs.1,000 received from Akash is credited in the account of Vikash. To nullify the effect of wrong credit to Vikash’s account, debit his account by Rs.1000. (Undo what is wrong). Give correct effect for the omission of a credit of Rs 1,000 to Akash’s account. (Do what is correct) Necessary rectification entry will be written as under.

Date ParticularsL.F.

DebitRs.

CreditRs.

Vikash’s A/c…………………………Dr. To Akash’s A/c(Being the rectification of Rs.1,000 received from Akash wrongly credited to Vikash’s account.)

1,000 1,000

TYPES OF ACCOUNTING ERROR:

• Errors which do not affect the trial balance.• Errors which affect the trial balance.

Errors which do not affect the trial balance

• Errors of Omission• Errors of Principle• Errors of recording to a wrong account• Errors committed at the time of recording in

primary books (Error of commission)• Compensatory errors

Errors which affect the trial balance

• Errors regarding posting• Errors regarding balance of an account• Errors in totaling the subsidiary books• Errors committed at the time of preparing

the trial balance

(1) Errors of Omission

• When a transaction is totally omitted to be recorded in the journal or the subsidiary books or the ledger, such an error is known as an error of omission.

• E.g. Rs.4,000 received from Bhavana is left unrecorded. By writing correct journal entry for this transaction the above error will be rectified.

Date ParticularsL.F.

DebitRs.

CreditRs.

Cash A/c………………..……Dr. To Bhavana’s A/c(Being the entry of Rs.4,000 received from Bhavana left unrecorded.)

4,0004,000

(2) Errors of PrincipleWhen an error arises because of non-compliance of accounting principles it is known as an error of principle.

e.g. Rs.5,000 worth furniture purchase is debited to purchase account. Here purchase of furniture should be debited to furniture account bu purchase account is wrongly debited by Rs.5,000. To nullify this effect, purchase account should be credited by Rs.5,000 and furniture account is to be debited by Rs.5,000 Thus rectification entry will be as under.

Date ParticularsL.F.

DebitRs.

CreditRs.

Furniture A/c……………………Dr. To Purchase A/c(Being the rectification entry for purchase of furniture wrongly debited to Purchase account.)

5,0005,000

(3) Errors of Recording to a Wrong

Account In such type of an error, journal entry is written correctly but while posting, instead of giving the effect to the correct account by mistake the effect is given to some other account. Thus by debiting or crediting a wrong account with correct amount, on the correct side, the trial balance remains unaffected.

e.g. Rs.1,500 received from Susmita, is creditd to Asmita’s account. Here at the time of posting, instead of Susmita’s account, Asmita’s account is wrongly credited. To cancel the wrong effect, debit Asmita’s account and give the correct effect, credit Susmita’s account. Thus, the error will be rectified

Date ParticularsL.F.

DebitRs.

CreditRs.

Asmita’s A/c……………………Dr. To Susmita’s A/c(Being the rectification entry for the amount received from Susmita’s wrongly credited to Asmita’s account.)

1,500 1,500

(4) Errors of Commission • Transaction Recorded in Correct

Book with Less Amount • Transaction Recorded in Correct

Book with More Amount • Transaction Recorded in Wrong

Subsidiary Books • Transaction Recorded in Wrong

Subsidiary Book with Wrong Amount

(a) Transaction Recorded in Correct

Book with Less Amount e.g. goods of Rs.1550 sold to sujata is recorded by mistake as Rs.1,050. In this transaction, the effect is given less by Rs.500 (Rs.1550-Rs.1050). To rectify this error write correct entry with the amount of difference.

Date ParticularsL.F.

DebitRs.

CreditRs.

Sujata’s A/c……………………Dr. To Sales A/c(Being the rectification entry for recording sales to Sujata by less amount.)

500500

(b) Transaction Recorded in Correct

Book with More Amount In this case original entry will be reversed with the amount of difference. E.g. Goods of Rs 1,500 purchased from Mayuri is recorded by mistake as Rs.1,550. Here as the entry is passed with more than the correct amount, to rectify the error reverse entry will be passed with the amount of difference Rs.50 (Rs.1550-Rs.1,500).

Date ParticularsL.F.

DebitRs.

CreditRs.

Mayuri’s A/c…………………Dr. To Purchase A/c(Being the rectification entry for the goods purchased from Mayuri recorded with excess amount.)

500500

(c) Transaction Recorded in Wrong

Subsidiary Books In this type of error, instead of recording the transaction in the correct subsidiary books, it is recorded in other subsidiary books.

e.g. Goods of Rs. 900 purchased from Akil is recorded in sales book. Here to remove the effect of a transaction wrongly recorded in sales book, reverse entry will be passed as under.

Date ParticularsL.F.

DebitRs.

CreditRs.

Sales A/c…………….………Dr.Purchase A/c……..………….Dr. To Akil A/c(Being the rectification of goods purchased from Akil, wrongly recorded in sales book.)

900900

1800

(d) Transaction Recorded in Wrong

Subsidiary Book with Wrong Amount E.g. Goods of Rs 900 Purchased from Akil, is wrongly recorded in sales book as Rs.90. To nullify the effect given in sales book, reverse the entry Rs.90 and give the correct entry for purchases of Rs.900.

Date ParticularsL.F.

DebitRs.

CreditRs.

Sales A/c…………………Dr.Purchase A/c……..……...Dr. To Akil A/c(Being the rectification of goods purchased from Akil Rs.900, wrongly recorded in sales book as Rs.90.)

90900

990

(5) Compensatory Errors

In the books of accounts when more than one error exists but because of their nullifying effects on debit and credit sides, the trial balance tallies, such errors are known as compensatory errors. E.g. Total of purchase book is overcast by Rs.500 and receipt of Rs.500 from Vanita is posted to her account by Rs.1,000.

Date ParticularsL.F.

DebitRs.

CreditRs.

Vanita’s A/c…………….Dr. To Purchase A/c(Being the rectification entry for excess credit to Vanita’s A/c and excess debit to Purchase A/c.)

500 500

(1) Error Regarding Posting • Omission of Posting • Posting Twice in an Account • Posting of a Wrong Amount in an

Account • Posting in an Account on the

Wrong Side • Posting Wrong Amount on Wrong

Side of an Account

(a) Omission of Posting While posting the transaction recorded in journal or subsidiary books, if posting is omitted in any account by mistake, it is known as an error of omission of posting and this case the trial balance does not tally.

e.g. Goods of Rs.6,000 purchased from Darshan is correctly recorded in the purchase book but posting in Darshan account is omitted.

This error will be rectified by posting the amount on the credit side of Darshan’s A/c as under.

Darshan’s account Dr. Cr.

Date ParticularJ.F.

Rs. Date ParticularJ.F.

Rs.

By being the amount posting omitted for goods purchased

6,000

(b) Posting Twice in an Account Out of the two accounts affected, if in any

one account posting is done on the correct side but twice by an error, the trial balance will not tally.

E.g. Goods of Rs.7,000 sold to Santosh is recorded correctly in the sales book but by mistake it is posted twice in the account of Santosh.

This error will be rectified by giving opposite effect in the account which is posted twice, by the amount of the transaction. Thus by writing Rs.7,000 on the credit side of Snatosh’s A/c and the column of particulare ‘by being an amount wrongly posted twice’ the error will be rectified.

(c) Posting of a Wrong Amount in an Account

While posting from the primary books if a wrong amount is posted in any account, the trial balance does not tally.

e.g. Rs.500 received from Tarun is posted in his account as Rs.50. In this case, by writing the deficit figure of Rs.450 in Tarun’s A/c on the credit side and in the column of particulars ‘by being an amount less credited’ the error will be rectified.

When the account is posted by more amount, the error is rectified by writing the amount of the difference on the opposite side.

e.g. Rs.1300 paid for salary, is posted as Rs.3100 in salary account. Here the error will be rectified by writing Rs.1800 in salary A/c on the credit side (i.e. opposite side) an in the column of particulars ‘by being excess amount posted’.

(d) Posting in an Account on the Wrong Side

While posting from the primary books, if the amount is posted on the wrong side (i.e. on credit side instead of debit side or vice versa), the trial balance does not tally. E.g. Rs.800 discount received is debited to discount account.

This error will be rectified by writing double the amount on the correct side. Therefore, in discount received A/c by writing Rs.1600 on the credit side of and in the column of particulars ‘by an amount posted on wrong side’ the error will be rectified.

(e) Posting Wrong Amount on Wrong Side of an Account In this case, posting is done in an account on the

wrong side and that too of a wrong amount.e.g Rs.2500 received from Palak, is written

correctly in the cash book but by mistake is written on the debit side of Palak’s A/c as Rs.500.

Here the error in Palak’s A/c will be rectified by writing on the credit side an amount equal to the sum of wrong amount plus the correct amount i.e. Rs.3000 and in the column of particulars ‘by posting of wrong amount on wrong side.’

(2) Error Regarding Balance of an Account

• Error in Finding out the Balance of an Account

• Balance of an Account is Written on the Wrong Side

• Balance of an Account is Omitted to be Recorded

• Error in Writing the Balance of an account

• Balance of an Account is Written on the Wrong Side with a Wrong Amount

(a) Error in Finding out the Balance of an Account

If the balance of any account is found either more or less the trial balance does not tally. If the calculated balance is less, put the deficit amount on the correct side to rectify the error. E.g. The credit balance of Abhilash’s A/c is worked out as Rs.3000 instead of Rs.13,000. Here, write Rs.10,000 in Abhilash’s A/c on the credit side and in the column of particulars ‘being less balance worked out’

If the balance is worked out in excess, error will be rectified by writing that excess amount on the opposite side of that account.

(b) Error in Writing the Balance of an account

In this case the balance is calculated correctly but when it is brought forward, it is written with a wrong amount and therefore the trial balance does not tally. E.g. opening balance of Rs.54,000 of Land and Building A/c us written as Rs.45,000. Here by writing Rs.9,000 in Land and Building A/c on the debit side and in the column, of particulars ‘being opening balance less written and thereafter by working out the closing balance with appropriate amount, the error will be rectified.

If more amount is written for the opening balance, the errors will be rectified by writing the amount of difference on the opposite side of the respective balance of that account.

(c) Balance of an Account is Omitted to be Recorded

If the opening balance of any account remains unrecorded, the trial balance does not tally. E.g. Opening balance of Rs.6,500 of machinery account remains unrecorded. To rectify this error write Rs.6,500 on the debit side of machinery account and thereafter work out the correct closing balance.

(d) Balance of an Account is Written on the Wrong Side

By mistake it he balance of any account is written on the opposite side (i.e. written on credit side instead of debit side and vise versa), the trial balance does not tally. E.g. A balance of Rs.2700 of Darshna, a creditor’s account is written on the debit side. Error in Darshna, a creditor’s account will be rectified by writing double the amount i.e. Rs.5400 on the credit side and in the column of particulars ‘being the amount written on the wrong side’ and thereafter calculating correct closing balance.

(e) Balance of an Account is Written on

the Wrong Side with a Wrong Amount The trial balance does not tally if

the balance of any account is written on the wrong side with a wrong amount. E.g. Credit balance of Ram’s A/c Rs.5,600 is written on the debit side as Rs.6,500. This error will be rectified by writing Ts.12,100 on the correct side i.e. on credit side and the column of particulars ‘being the balance written on wrong side with wrong amount’ and thereafter writing the closing balance with the correct amount.

(3) Errors in Totaling the Subsidiary Books

The trial balance does not tally if an error is committed while totaling subsidiary books like Purchase Book, Sales Book, Goods return Book, Cash Book etc. This error will be rectified by writing necessary note in that respective account. A journal entry is not necessary to rectify this type of error.

e.g. (1) Total of purchase book is under cast by Rs.1500. This error will be rectified by writing in purchase account Rs.1500 on debit side and in the column of particulars ‘being the total undercast.’ (2) In a three column cash book on payment side discount column total is overcast by Rs.50. This error will be rectified by writing in discount account Rs.50 on debit side and in the column of particulars ‘being total overcast’

After rectifying these errors closing balance should be calculated with the correct amount.

(4) Errors Committed While Preparing Trial Balance

While preparing the trial balance there remains a possibility of errors like, error in totaling of the trial balance, balance of an account is omitted to be recorded, in recorded twice, is recorded with wrong amount, is recorded on the wrong side, or is recorded on wrong side with wrong amount.

In order to rectify these types of errors no journal entry is required to pass. After rectifying the errors, a new trial balance is prepared and it will get tallied.

SUSPENSE ACCOUNT

When the trial balance does not tally because of some accounting errors and it requires more time to prepare final accounts after detection and rectification such errors, but there is an urgency for preparing final accounts, temporarily the difference in the trial balance is transferred to one account, in order to get it tallied and that account is known as a Suspense Account,

End of Chapter