Rectification of Errors

Learning Objectives

 Explain Types of Errors and their examples

 Rectification the Errors :
 Two sided i.e. Errors not affecting Trial Balance one sided i.e. Errors which affect Trial
Balance.
 To Explain Meaning and Utility of Suspense A/c
 Maintain Suspense A/c.

INTRODUCTION

In the previous chapter we have learnt that a Trial Balance is prepared to check the arithmetic accuracy of
transactions recorded in a Journal, posting them into the ledger and balancing the ledger account. If a Trial Balance
agrees, it is assumed that recording, posting etc. have been done correctly. But this is only partially correct because
even if Trial Balance agrees, there may be some errors in the accounting records.

For example if a credit sale is omitted to be entered in the Sales Book, it will notaffect> the trial balance because both
the Debit and the Credit aspects of this transaction are not recorded. In other words errors in the records may or may
not affect Trial Balance.

Important : The errors whether affecting the Trial Balance or not must be detected and rectified.

Need of Rectification :

1. For the preparation of correct Accounting Records.

2. Preparation of P & L A/c with corrected figures to ascertain correct Profit or Loss.
3. To find out the true financial position of the firm by preparing Balance Sheet with
corrected figures.

CLASSIFACATION OF ERRORS
(on the basic of Nature)

Type of Error with Meaning Sub-Types with Examples

I. Error of Omission (a) Error of Complete Omission

completely or partialy omitted to be recored in the Goods sold to X on Credit but not recorded in Sales Book.
books)
*(b) Partial Ommission

Goods sold to X on Credit recorded in Sales Book but not posted to the
A/c of X, thus sales A/c is credited but X is not debited creating
short debit. This error will affect Trial Balance.

II. Error of Commission (a) Error of Recording in the Book Of Original Entry
(These errors are caused due to wrong recording of
transactions wrong totalling of subsidiary books or Goods purchased from Ravi for Rs. 450, recorded as Rs. 540, in the
Ledger A/cs, Wrong posting and wrong carry Purchase Book. (This error will not affect Trial Balance as same amount
forward) will be posted in both the A/cs, Purchase A/c as well as Ravi.)

*(b) Wrong Totalling of Subsidiary Book.

Example : Purchase Book has been undercast (short totalled) by Rs.

100, Purchase A/c will be debited short by Rs. 100, decreasing the debit
side of Trial Balance by Rs. 100.

(c) Error in Totalling or Balancing of Ledger A/cs*

Example : Creditors A/c has been balanced short by Rs. 500, then Trial
Balance will Rs. 500 short in Credit side.

(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 Creating short debit of
Rs. 450, in Purchase A/c and in turn short debit
in Trial Balance.

III. Errors of Principles. (a) Treating capital items as revenue item

(These errors are caused due to the violation of Example : Wages paid for the installation of a new machinery charged
accounting principles i.e. allocation between Capital to Wages A/c instead of Machinery A/c.
and Revenue Items.
(b) Treating Revenue Items as Capital Item

Example : Rs. 200 paid for the repairs of an old

Machinery but debited to Machinery A/c instead
of Repairs A/c.

IV. Compersation Errors Example : On July, 1st 2011 a sum of Rs. 2,000 paid to Mohit is posted
as Rs. 200 to the Debit of his A/c and on July 20th, 2011 a sum of Rs.
 (Two or more errors committed in such a way that 200 paid to Sonil has been posted as Rs. 2,000 to the Debit of his A/c.
the net effect of these errors of the debit and credits Net Effect will be zero.
of A/cs is nil).

Important 1 :

1. Errors of Principles and compensating Errors don't affect Trial Balance.

2. Errors shown by star in the above table affect Trial Balance.

TYPES OF ERRORS FROM RECTIFICATION

POINT OF VIEW

From Rectification point of view, errors are classified into the following two categories only :
Case I : Errors which don't affect the Trial Balance
or
Two Sided Errors
Case II : Errors which affect the Trial Balance
or
one Sided Errors.

Errors don't Affecting Trial Balance

(1) Errors of complete ommission.

(2) Wrong recording in the books of original entry.
(3) Complete ommission from posting to the A/cs.
(4) Errors of posting to the wrong A/c but on the correct side.
(5) Compensating errors.
(6) Errors of principle

Errors Affecting Trial Balance.

Shown by star in the table showing
Errors : Types and Examples.

(1) Errors in totalling of Subsidiary books or ledger A/cs - i.e. overcast or undercast.

(2) Error in the Balancing of Ledger A/cs.

(3) Error in posting to the correct A/c but with the wrong amount or to the wrong side or both.

(4) Errors of Paitial ommission

(5) Omitting to show an A/c in the Trial Balance.

RECTIFICATION OF ERRORS

When th 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 Depiciation of an error means

1. Errors detected before the preparation of Trial Balance.

2. Errors detected after prepairing Trial Balance but before preparing final Accounts.
3. Error 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)

I 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 deficiation. In other words their
rectifying entry will be same whether (a) the error is depicted before preparing Trial Balance or (b) after the
preparation of Trial Balance but before the Final A/cs are prepared.

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 A/cs are affected

1- Machinery A/c is not debited its debit side is short by Rs. 10,000, whereas purchases A/c is 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

2- because it w as not debited earlier and purchases A/c will be credited because it was wrongly debited Hence.

Rectifying Entry is :

(II) When an account has wrongly been Credited in place of another account.
Example : Rs. 5,000 received from the sale of old furniture has been Credited to Sales A/c.
Solution : This errors also affects the two A/cs

 Furniture A/c is not Credited its credit side is short by Rs. 5,000.
 Sales A/c is credited by mistake its credit side is in excess or Rs. 5,000.
 Therefore for rectifying this mistake Sales A/c will be debited because it was arongly Credited and
Furniture A/c which was not Credited earlier will now be credited by Rs. 5,000.

Hence Rectifying entry is :

(III) - When there is a short dobit in one A/c and a short Credit in another A/c.

Example : Goods sold to Seema for Rs. 540 was entered in the Sales Book as Rs. 450.

Solution :

 Here Seema's A/c is debited by Rs. 90 short and Sales A/c is credited by Rs. 90 short. (Instead of
Rs. 540 by Rs. 450)
 Therefore rectification will be done by Debiting Seema's A/c and Crediting Sales A/c. Hence
Rectifying entry is :

(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 Purchase Book as Rs. 3000.

Solution -

 Here Purchases A/c is Debited by Rs. 3000, instead of Rs. 300, ie. Rs. 2700, more.
 Mohan's A/c is also Credited by Rs. 2700 more.
 Rectification will be done by debiting Mohan's A/c and Crediting purchases A/c by Rs.
2700, ie. the entry in the reverse direction.

Rectifying Entry
Problem :
Rectify the following errors :

1. Credit purchases from Amit not recorded for Rs. 8,000 (Error of Complete ommission).
2. Wages paid Rs. 500 for the installation of a new Machinery were recorded in wages A/c. (Error of Principle)
3. Credit sales to Anil for Rs. 5,000 were posted to Amit's A/c (Error of Com mission)
4. Goods purchased from Ram for Rs. 900 were recorded in Sales Book (Error of Commission)
5. Goods retuired to Amit for Rs. 1,000 entered as Rs. 100 (Error of Cmmission)
6. Rent paid Rs. 400 wrongly debited to Landlord's A/c (Error of Principle)
7. Rs. 500, paid for the proprietor's medical bill were debited to "Sundry Expenses A/c" [Error of Principle]
8. Rs. 2,500, received from Anil were recorded in the Cash Book as Rs. 5,200 [Error of Commission]

Solution : Note that

In Error No. 4. more than two Account are affected.

(a) Wrong Entry done

Ram Dr. 900
To Sales A/c 900

(b) Correct Entry Required

Purchases A/c Dr. 900
To Ram 900
Here to cancel the effect of wrong entry we have to do the entry

(c) Sales A/c Dr. 900

To Ram 900
Now the Rectifying entry will be

Entry (b) + Entry (c) ie.

Date/Error Particular L.F Dr. (Rs) Cr. (Rs)

1. Purchases A/c Dr. 8,000

ToAmit 8,000
(For the credit purchases
to Amit omitted to be recorded)
Important :

Rectification of double sided errors can easily be understood by the students.

There are rectified by passing the journal entries as given above irrespective of the
time of defiction of the errors.

RECTIFICATION OF ONE SIDED ERRORS

These errors affect only one side of an Account either debit or credit. Therefore
these errors affect the Trial Balance. Rectification of these errors is done difference in the two cases i.e.

(i) Before preparing the Trial Balance

(ii) After praparing the Trial Balance

Casse I : Rectification of one sided errors before preparing Trial Balance.

When there errors are rectified before preparing Trial Balance i.e transfering the difference in the Trial Balance to the
Suspense Account.

(Which will be explained later on), then it is done directly by debiting or crediting the concerned ledger account.

For short Debit → Concerned A/c is Debited

For Excess Credit → Concerned A/c is Debited

For Short Credit → Concerned A/c is Credited

For Excess Debit → Concerned A/c is Credited

Example : (1) Purchase Book undercast by Rs. 150

Analysis : It means that the total of the Purchase Book is Rs. 150 short.

 This total is posted to purchase A/c - Debit side

 Hence purchase A/c is debited short by Rs. 150
 No effect on any other A/c
 Therefore purchase A/c will be debited by Rs. 150 to rectify this error as given below.

Here debit side of the Purchase A/c was short therefore the rectification is done by debiting the A/c.
Example 2 - Purchase Book is overcast by Rs. 300

Analysis

 Means total of the purchase Book is in excess by Rs. 300 which is posted to the debit side of purchase A/c
 Hence purchase 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 purchase A/c (ie. opposite side)

Here debit side of the purchases A/c was in excess, 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 the Suspense Account.

For short Debit in one Account → Debit that Account and Credit the Suspense A/c
Excess Credit in one Account Debit that Account and Credit the Suspense A/c
Short Credit in one Account → Credit that A/c and Debit the Suspense A/c
Excess Debit in one Account → Credit that A/c and Debit the Suspense A/c
Example 3 : Hence for the same error as given in example No in case I, the following Journal Entry will be passed.

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.

Note :
When nothing is mentioned in the question about the time of detection of an error, the students are advised to rectify
one sided errors through Suspense A/c.

PROBLEM

Rectify the following errors

(A) Without opening a Suspense A/c
(B) By passing Journal entries through Suspense A/c.

(1) Rs. 400 Paid to X were entered in the Cash Book but omitted to be posted to the Ledger.
(2) Rs. 400 Paid to X were debited to his A/c as Rs. 40
(3) Rs. 400 paid to X were debited to his A/c as Rs. 4000 (for Thousand) (4) Rs.400 Paid To X were Credited to his
A/c
(5) Rs.400 Paid To X were Credited to his A/c as Rs. 40 (6) Sales Book was overcast by Rs. 200.
(7) Sales Return Book undercast by Rs. 400
(8) Purchase Return Book undercast by Rs. 500.

Solution :

(A) Without opening a Suspense A/c As explained earlies, if the errors (single side) are detected before preparing
Trial Balance then these are rectified by directly the amount in the concerned Ledger Accounts.

1. X’s A/c will be debited by Rs. 400 as it is a case of partial ommission.

2. X’s A/c was debited show by Rs. 360 (400-40) there for the rectification will be done by debiting X’s A/c by
Rs. 360.
3. X’s A/c was debited in excess by Rs. 3600 (4000-400) therefore rectifica- tion will be done by Crediting
the X’s A/c by Rs. 3,600.
 4. X’s A/c was Credited by Rs. 400 instead of debiting by Rs. 400, therefore rectification will be done
by debiting the X’s A/c by Rs. 400+400 ie. Rs. 800 (Rs. 400 to cancel the effect of wrong credit and Rs.
400 for actually debiting the A/c).
5. X’s is wrongly Credited by Rs. 40 instead of Debiting it by Rs. 400. Hence rectification will be done
by Debiting the x’s A/c by Rs. 440.
6. Sales Book overcast means Sales A/c is Credited is excess by Rs. 200 where as customer’s have been
debited by the correct amount.
Hence rectificaion will be done by debiting - Sales A/c by Rs. 200.
7. Sales Return Book total Undrcast by Rs. 400 means Sales Return A/c is debited short by Rs.
400. Hence Rectification will be done by debiting the Sales Return A/c by Rs. 400.
8. Purchase Return Book undercast by Rs.’ 500 means Purchase Return A/c is credited short by Rs. 500.
Hence rectification will be done by Crediting the Purchase Return A/c by Rs. 500.

Exact Solution :

In this example the rectification in X’s A/c from Error No. 1 to 4 will be shown as follows :

X's Account

Error/ Particular L.F (Rs) Date Particular L.F (Rs)

Date

(1) To ommission of posting 400 (3) By Error in 3,600

of Cash Paid Posting With the
wrong
To Error in Posting with Amount
(2) the Wrong Amount 360

To Error in Posting
to the Wrong side
(4)

800

(B) By opening Suspense A/c

only Rectifying Journal Entries are done.

Date/ Particulars L.F Debit Credit

Error Amount Amount
(Rs) (Rs)

(1) X Dr 400
To Suspense A/c
(Cash paid to X omitted to be posted to X’s 400
A/c)
(2)
X Dr
To Suspense A/c
(Cash paid to X was debited to his
A/c with the lesser amount)
 Suspense A/c Dr
To X

(X’s A/c was debitecd with excess amount)

(3) 360

360

(4) X Dr 800
To Suspense A/c
(For posting to X account was done on the wrong side 800
(Cr) by Rs. 400)
(5)
X Dr
To Suspense A/c
440
(For posting made with the wrong
amount on the wrong side, now corrected)
(6) 440
Sales A/c Dr
To Suspense A/c
(Overcast of Sales Book rectified)

Sales Return A/c Dr

To Suspense A/c
(For the under-cast of sales return book, rectified) 200

Suspense A/c Dr
200
To Purchase Return A/c
(For the rectification of under-cast of purchase return
book)

400

400

500

500

Suspense Account and its Disposal :

Important :

 When in-spite of the effects, 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 purpos 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 automatically closed i.e. it will show
zero balance.
 But if suspense A/c still shows a balance it will indicate tha certain 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 trfd to the suspense A/c.

The following errors were then subsequently discovered :

(1) Received Rs. 550 from X, were posted to the debit of his account.
(2) Rs. 100 being purchase return were posted to the debit of purchases A/c.
(3) Discount received Rs. 200 Correctly entered in the Cash Book but posted to the debit of the discount A/c.
(4) Salary paid Rs. 3,500 to x were posted to the salary A/c as Rs. 2,500.
(5) A purchase of Rs. 400 has been passed through Sales Book. However the customer's account has been correctly
credited.

Give Rectifying entries and Suspense A/c

Rectifying Journal Entries

Date Particulars L.F Debit Amount Credit Amount

(1) Suspense A/c Dr 1,100

To X
(Amount received from x was posted to the wrong 1,100
side
now corrected)

Suspense A/c Dr
(2)
To Purchase A/c
To Purchase Returns A/c
(For the purchase return wrongly posted to the
purchases A/c)
(3) 200
Suspense A/c Dr
To Discount A/c 100
(Discount received was posted 100
to the wrong side of discount A/c)
400
400

(4) Salary A/c Dr 1,000

To Suspense A/c
(Salary paid was posted to salary A/c with lesser amount) 1,000

Purchases A/c Dr
(5)
Sales A/c Dr
 To Suspense A/c
(Purchases has been passed through sales book but the
customer’s A/c has been correctly credited)

400
Suspense A/c

Date/ Particular J.F (Rs) Date Particular J.F (Rs)

Error

To Difference in the 100 (4) By Salary A/c 1,000

Trial Balance (5) (i) By Purchases A/c 400
(ii) By Sales A/c 400

(1) To ×
(2) To Purchase A/c 1,100 Balance c/d Nil
(3) To Return A/c 100
(4) To Discount A/c 100
400

1,800 1,800

Since the Balance of the suspense A/c is nil, it indicates that all the errors have been rectified.
Suggested Methodology
Discussion and Explanation method is suggested.