Rectification of errors

Rectification of errors

Depending on the stage at which errors are located, they are subsequently rectified at the respective stage itself.

1. Stages of rectification of errors

The following are the various stages of rectification of errors:

(i)  Rectification of errors before preparing trial balance

If the accountant finds time before preparing trial balance to recheck the entries made in the journal, postings in the ledger accounts, amounts carried forward and balancing of ledger accounts with the intention of ensuring their correctness, he/she will be able to locate and rectify the errors at that stage itself.

(a) Rectification of one-sided errors before preparing trial balance

When one-sided error is detected before preparing the trial balance, no journal entry is required to be passed in the books. In such cases, the error can be rectified by giving an explanatory note in the account affected as to whether the concerned account is to be debited or credited.

Illustration 1 (Errors in casting)

The following errors were detected before the preparation of trial balance. Rectify them.

a.   Sales book is undercast by Rs.  100

b.   Sales book is overcast by Rs.  200

c.   Purchases book is undercast by Rs.  300

d.   Purchases book is overcast by Rs.  400

Solution

Note

Illustration 2 (Errors in casting)

The following errors were detected before preparation of trial balance. Rectify them.

a.        Purchases returns book is undercast by Rs.  500.

b.        Purchases returns book is overcast by Rs.  600.

c.         Sales returns book is undercast by Rs.  700.

d.        Sales returns book is overcast by Rs.  800.

Solution

Illustration 3 (Errors in carry forward)

The following errors were detected before preparation of trial balance. Rectify them.

a.        The total of purchases book is carried forward to the next page Rs.  100 short.

b.        The total of purchases returns book is carried forward to the next page Rs.  200 excess.

c.         The total of sales book is carried forward to the next page Rs.  300 excess.

d.        The total of sales returns book is carried forward to the next page Rs.  400 short.

Solution

Illustration 4 (Errors in carry forward)

The following errors were detected before preparation of trial balance. Rectify them.

a.        The total of rent received account is carried forward Rs.  900 short.

b.        The total of rent received account is carried forward Rs.  1,000 excess.

c.         The total of salary account is carried forward Rs.  1,100 short.

d.        The total of salary account is carried forward Rs.  1,200 excess.

Solution

Illustration 5 (Errors in posting)

The following errors were detected before preparation of the trial balance. Rectify them.

a.        A sum of Rs.  5,000 written off as depreciation on buildings has not been posted to depreciation account.

b.        Payment of wages Rs.  2,000 to Venkat was posted twice to wages account.

c.         An amount of Rs.  250 for a credit sale of goods to Nila, although correctly entered in the sales book, has been posted as Rs.  200.

Solution

(b) Rectification of two-sided errors before preparing the trial balance

When a two-sided error is detected before preparing the trial balance, it must be rectified by passing a rectifying journal entry in the journal proper after analysing the error.

Practical steps to be followed in rectifying two-sided errors

Illustration 6

The following errors were located before the preparation of the trial balance. Rectify them.

a.        Goods sold to Anand for Rs.  1,000 on credit was not entered in the sales book.

b.        An amount of Rs.  400 paid for repairs to the machinery stands wrongly posted to machinery account.

c.         Salaries Rs.  2,000 paid to Gandhiraj was wrongly debited to his personal account in the ledger.

Solution

Method of deriving the rectifying entries

Note

Illustration 7

The following errors were located before the preparation of the trial balance. Rectify them.

a.        Paid Rs.  500 to Angappan were wrongly debited to Angannan’s account.

b.        Sale of furniture for Rs.  750 was credited to sales account.

c.         Purchase of goods from Bagya for Rs.  2,100 was wrongly passed through sales book.

d.        Wages Rs.  1,000 paid on erection of machinery were debited to wages account.

Solution

Method of deriving the rectifying entries

(ii) Rectification of errors while preparing the trial balance

Errors can be rectified at the time of preparing the trial balance as follows:

(a) Rectification of one-sided errors while preparing the trial balance

While preparing the trial balance, if the total of debit balances and credit balances are not the same, there is disagreement of trial balance. It shows that there are errors in the books of accounts. As a consequence, the accountant may start locating errors before closing the trial balance. In such cases, the errors are rectified at that stage itself. At this stage, the rectification of one-sided errors is made in the same manner as in the case of rectification before preparing trial balance. Rectifying journal entries are not required to be passed in the books. In such cases, errors can be rectified by giving an explanatory note in the account affected.

Illustration 8

The following errors were located at the time of preparation of the trial balance. Rectify them.

a.        Sale of goods to Akila on credit for Rs.  1,520 posted to her account as Rs.  1,250.

b.        Bought goods from Narendran on credit for Rs.  5,500, credited to his account as Rs.  5,050.

c.         Purchase of furniture from Ravivarman for Rs.  404 on credit were debited to furniture account as Rs.  440.

d.        Purchased machinery for cash Rs.  2,000 was not posted to machinery account.

e.         The total of purchases book Rs.  899 was carried forward as Rs.  989.

Solution

(b) Rectification of two-sided errors while preparing the trial balance

Rectification of two-sided errors at the time of preparing the trial balance is just similar to that of their rectification before preparation of trial balance.

Illustration 9

The following errors were located at the time of preparation of the trial balance. Pass rectifying entries.

a.        Goods of the value of Rs.  100 returned by Bhuvana were included in stock, but no entry was made in the books.

b.        Sale of goods to Mani on credit for Rs.  475 has been wrongly entered in the sales book as Rs.  745.

c.         A cheque of Rs.  500 received from Sandhiya was dishonoured and debited to allowances account.

d.        A sum of Rs.  300 drawn by the proprietor for personal use was debited to wages account.

Solution

Method of deriving the rectifying entries

(iii) Rectification of errors after preparing the trial balance but before preparing the final accounts

(a) Rectification of one-sided errors after preparing the trial balance

If there is disagreement of trial balance and if it is not possible immediately to locate errors, the accountant may place the difference to ‘suspense account’. After that, before the preparation of final accounts, the entries, postings, castings, balancing of accounts and amounts carried forward are scrutinised to locate the errors.

At this stage, every one-sided error is rectified by passing a rectifying journal entry with the respective account (debited or credited) and suspense account (credited or debited). The suspense account is used to rectify such errors so that the difference in trial balance placed to that account gets adjusted. Once all the one-sided errors are completely rectified, the balance in the suspense account gets eliminated.

Illustration 10

The following errors were located after the preparation of the trial balance. Assume that there exists a suspense account. Rectify them.

a.        Sale of goods on credit to Arun for Rs.  152 posted to his account as Rs.  125.

b.        Bought goods from Lakshmi on credit for Rs.  550, credited to her account as Rs.  505.

c.         Purchase of furniture from Abirupa for Rs.  404 on credit was debited to furniture account as Rs.  440.

d.        Purchased machinery for cash Rs.  200 was not posted to machinery account.

e.         The total of purchases book Rs.  89 was carried forward as Rs.  98.

Solution

Tutorial note

Illustration 11

The following errors were located after the preparation of the trial balance. Assume that there exists a suspense account. Pass journal entries to rectify them.

a.        The total of purchases book was undercast by Rs.  100.

b.        The total of the discount column on the debit side of cash book Rs.  575 were not posted.

c.         The total of one page of the sales book for Rs.  5,975 were carried forward to the next page as Rs.  5,795.

d.        Salaries Rs.  1,800 were posted as Rs.  18,000.

e.         Purchase of goods on credit from Mukilan for Rs.  150 have been posted to his account as Rs.  1,500.

Solution

(b) Rectification of two-sided errors after preparing the trial balance

At this stage, every two-sided error is rectified by passing a rectifying journal entry by debiting one of the accounts affected and crediting the other account. As these errors do not cause difference in trial balance, the suspense account is not used in the rectifying journal entries. Therefore, the rectifying entries passed for rectifying two-sided errors before preparation of trial balance and after preparation of trial balance are the same.

Illustration 12

The following errors were located after the preparation of the trial balance. Rectify them.

a.        Paid Rs.  50 to Anitha was wrongly debited to Vanitha account.

b.        Sale of furniture for Rs.  500 was credited to sales account.

c.         Purchased goods from Natarajan on credit for Rs.  750 were wrongly passed through sales book.

d.        Wages Rs.  1,000 paid on erection of machinery was debited to wages account.

Solution

Illustration 13

Rectify the following journal entries.

Solution

Illustration 14 (One-sided errors and two-sided errors)

Pass journal entries to rectify the following errors located after the preparation of the trial balance. Assume that there exists a suspense account.

a.        The total of sales book was undercast by Rs.  2,000.

b.        The purchase of machinery for Rs.  3,000 was entered in the purchases book.

c.         A credit sale of goods for Rs.  45 to Mathi was posted in his account as Rs.  54.

d.        The purchases returns book was overcast by Rs.  200.

e.         The total of sales book Rs.  1,122 were wrongly posted in the ledger as Rs.  1,222.

Solution

Illustration 15 (One-sided errors and two-sided errors with preparation of suspense account)

A book-keeper finds that the debit column of the trial balance is short by Rs.  308 and the difference is put to a suspense account. Subsequently, the following errors were located.

a.        An entry for sale of goods on credit for Rs.  102 to Mekala was posted to her account as Rs.  120.

b.        Rs.  100 being the monthly total of discount allowed to customers was credited to discount received account in the ledger.

c.         Rs.  275 paid by Mannan was credited to Kannan account.

d.        Rs.  26 appearing in the cash book as paid for the purchase of stationery for office use has not been posted to ledger.

e.         The purchases book was undercast by Rs.  100.

Rectify the errors and prepare supense account.

Solution

(iv) Location and rectification of errors after preparing the final accounts

Sometimes, though there is disagreement of trial balance, due to lack of time and urgency in the completion of final accounts, the accountant may not locate and rectify the errors. Under such circumstances, the difference in trial balance is placed to the suspense account, which may show either debit balance or credit balance. If it shows a debit balance, it is shown on the assets side. If it shows a credit balance, it is shown on the liabilities side. The errors will be located and rectified by the accountant during the next accounting period. If the error to be rectified is in a nominal account, it affects the profit or loss of the business. Hence, instead of debiting or crediting them for rectification, profit and loss adjustment account is debited or credited. If the error to be rectified is in a real account or personal account, the respective real account or personal account itself is debited or credited for rectification. After all the errors are rectified, the net effect on profit is calculated by preparing profit and loss adjustment account and the balance is transferred to capital account.