1. NETAJI NAGAR COLLEGE B.COM 1st Year, 2018
DR. BISWAJIT BHADRA

2. Rectification of Errors

3. ERRORS- THE CONCEPT
Errors are unintentional mistakes made by the accountant/book-keeper while recording transactions in the books of accounts.
In the process of accounting, a trial balance is prepared which only reflects the arithmetical accuracy but does not guarantee the absence of any errors in the books .
In such a case if trial balance agrees there may or may not be errors in the books but if trail balance does not agree it clearly indicates some kind of error(s) in the books of accounts.

4. TYPES OF ERRORS On the basis of nature:
ERRORS OF OMISSION [Total/Partial]
ERRORS OF COMISSION [Amount/Account]
ERRORS OF PRINCIPLE [Nature of expenditure]
ERRORS OF MISPOSTING [Ledger]
COMPENSATING ERRORS [Set off]
On the basis of effects:
One sided error
More than one sided error [Two sided error]

5. SINGLE-SIDED ERRORS
All errors are not identified by the trail balance. Errors which are identified at the time of tallying the trial balance are SINGLE-SIDED ERRORS.
These errors affect only one side of the accounts[either debit side or credit side] OR
Both the debit and credit aspects of the accounts by different amounts.

6. SINGLE-SIDED ERRORS These can be – Errors of partial omission OR
Errors of Commission:
Errors of Casting
Errors of Carry-forward
Errors of posting to wrong account
Errors of posting on wrong side of correct account
Errors in balancing an account

7. DOUBLE SIDED ERRORS
Errors which do not get identified by the trial balance usually affect both the debit as well as the credit aspects of the accounts by the same amount. So they are also referred to as DOUBLE SIDED ERRORS.
Such an error can be rectified only by a rectification entry.

8. DOUBLE SIDED ERRORS These can be – Errors of total omission:
Complete omission of recording
Complete omission of posting
Errors of Commission:
Recording transaction in wrong book of accounts
Incorrectly recording transaction in correct book of accounts

9. DOUBLE SIDED ERRORS Errors of principle Errors of misposting
Compensating errors

10. Rectification of Errors
The type of rectification entry to be passed depends on the stage at which error has been detected.
The stages of error detection are –
Before the preparation of Trial Balance
After the preparation of Trial Balance but before Final Accounts
After the preparation of Final Accounts

11. Before the preparation of Trial Balance
At this stage, the ledger accounts are not yet closed for the accounting period. So rectification at this stage is done by passing a Rectification Statement for any single sided error.
For rectifying a double sided error a rectification entry may be passed involving personal, real or nominal accounts.

12. After the preparation of Trial Balance but before Final Accounts
At this stage, the ledger accounts are already closed for the accounting period. So while preparing trial balance if any error is detected, repetitive checking is done to identify the cause of such error.
If the error cannot be identified even after such checking but the preparation of final accounts cannot be delayed further, the trial balance is tallied on a temporary basis with the help of Suspense Account.

13. Suspense Account
Existence of Suspense Account indicates the presence of some error in the books of accounts.
Suspense Account arises when:
Trial balance cannot be tallied
Accountant is not sure of the accounting treatment of any particular transaction.
Suspense A/c is a temporary measure which has to be disposed by identifying and rectifying the error.

14. After the preparation of Trial Balance but before Final Accounts- Rectification
Rectification of any error is done by passing a Rectification Entry.
Rectification of single sided errors are done by passing rectification entries involving Suspense A/c.
Rectification of double sided errors are done by passing rectification entries without involving Suspense A/c.

15. After the preparation of Final Accounts
At this stage, Final Accounts have been prepared. So all nominal accounts have been closed with a closing entry.
Rectification of any Nominal Account is therefore done by replacing such nominal account with Profit & Loss Adjustment Account.
Rectification of single sided errors are done by passing rectification entries involving Suspense A/c.
Rectification of double sided errors are done by passing rectification entries without involving Suspense A/c.

16. Profit & Loss Adjustment Account
It is a special account that replaces nominal accounts if errors are rectified after preparation of Final Accounts.
It is called so because adjustments of the nominal accounts results in the adjustment of profit/loss of the preceding period. The net balance of the P/L Adjustment A/c helps to know the correct profit/loss for the accounting period.

17. Effect on profit or loss
When any nominal account is debited in rectification entry-
Profit decreases or loss increases
When any nominal account is credited in rectification entry-
Profit increases or loss decreases

18. EXAMPLES: Before Preparing The Trial Balance
The following errors were committed by the Book-keeper. Rectify the errors assuming that they were detected before preparing the Trial Balance: Rs paid for construction of new room was charged to office expense account. Building A/c ….Dr To Office Expense A/c 50000

19. Credit sale to Ram 5400 was posted to his account.
Ram Account will be debited to 5400
Purchase from Amir 6500 was entered in the Purchase Day Book as 5600.
Purchase A/c ….Dr
To Amir A/c 900

20. Sales day book was overcast by 8200
Sales account will be debited by 8200 Wages paid for installation of a machine for wrongly debited to wages account. Machinery account …Dr To wages account 56000

21. Commission payable to John 400 was wrongly recorded as Commission Receivable from him
Commission Receivable A/c …Dr. 400 Commission Payable A/c … Dr. 400 To John A/c 800 A purchase of 8000 from Lama was passed through the Sales Day Book Purchase A/c ..Dr Sales A/c .. Dr To Lama A/c 16000

22. Return Inward Book was cast short by 4500
Return Inward Account will be debited by 4500 Goods returned by Shyam 9300 was posted to his account from the Return Inward Book as Shyam account will be debited by 5400

23. EXAMPLES: After Preparing The Trial Balance
Purchase stationery 4500 was recorded as purchase of machinery Stationery A/c..Dr To Machinery A/c 4500 Cash paid to Bose was posted in his account as Bose A/c… Dr To Suspense A/c 19800

24. A purchase of 67100 had been posted to the debit of supplier as 61700
Suspense A/c …Dr ( ) To Creditor A/c A cash sale of 7300 to Rupam correctly entered in the cash book, was posted to the debit of Rupam’s personal account in the ledger. Suspense A/c …Dr To Sales A/c 7300 To Rupam A/c 7300

25. Purchase Day Book was overcast by 52300
Suspense A/c …Dr To Purchase A/c The purchase day book total had been posted as Purchase A/c …Dr To Suspense A/c 2700

26. An item of purchase of was entered in the inward invoice book as 1500 and posted to the supplier’s account as 5100
Purchase A/c …Dr [ ] To Creditor A/c [15100 – 5100] To Suspense A/c 3600 Bills receivable from X of was posted to the credit of bills payable account and also credited to the account of X Bills Receivable A/c…Dr Bills Payable A/c…. Dr To Suspense A/c

27. EXAMPLES: After Preparing The Final Accounts
Purchase stationery 4500 was recorded as purchase of machinery Profit & Loss Adjustment A/c..Dr To Machinery A/c 4500 Cash paid to Bose was posted in his account as Bose A/c… Dr To Suspense A/c 19800

28. A purchase of 67100 had been posted to the debit of supplier as 61700
Suspense A/c …Dr ( ) To Creditor A/c A cash sale of 7300 to Rupam correctly entered in the cash book, was posted to the debit of Rupam’s personal account in the ledger. Suspense A/c …Dr To Profit & loss Adjustment A/c 7300 To Rupam A/c 7300

29. Purchase Day Book was overcast by 52300
Suspense A/c …Dr To Profit & Loss Adjustment A/c The purchase day book total had been posted as Profit & Loss Adjustment A/c …Dr To Suspense A/c 2700

30. Bills receivable from X of 100000 was posted to
An item of purchase of was entered in the inward invoice book as 1500 and posted to the supplier’s account as 5100
Profit & Loss Adjustment A/c …Dr [ ]
To Creditor A/c [15100 – 5100]
To Suspense A/c
Bills receivable from X of was posted to
the credit of bills payable account and also credited
to the account of X
Bills Receivable A/c…Dr
Bills Payable A/c…. Dr
To Suspense A/c

31. Profit & Loss Adjustment A/c ..Dr. 1000 [ 500 X 2]
Discount of 500 allowed to a debtor has been treated as discount received. The debtor’s account has been correctly credited.
Profit & Loss Adjustment A/c ..Dr [ 500 X 2]
To Suspense A/c

32. THANK YOU