DEPARTMENT OF COMMERCE

NIZAM COLLEGE
(AUTONOMOUS-NAAC ACCREDITED-CPE STATUS)
OSMANIA UNIVERSITY
HYDERABAD.

Certificate

This is to certify that Mr./Ms.______________________________

studying in the B.Com (E.Com) I year, bearing a Hall Ticket no__________

has successfully completed computer Practical in the subject Financial

Accounting, as prescribed in the syllabus, during the Semester, ‘II’ for

the Academic Year 2010-2011.

External Examiner Internal Examiner

Name: Name:
Date: Date:
 Rectification of Accounting Errors
Every businessman is interested in finding out the true profit and correct financial
position of his business at the close of the trading period. The effort of the
accountant is to prepare the final accounts in such a fashion which exhibits true
picture of the business. Accounts are considered to be authentic proof of true
financial position of a concern. But in spite of best efforts there are certain
transactions which are omitted to be recorded or entered wrongly in the books. Such
errors affect the final accounts. An accountant should, therefore, try to locate such
errors and rectify them before the preparation of final accounts.

Accountants prepare trial balance to check the correctness of accounts. If total of

debit balances does not agree with the total of credit balances, it is a clear-cut
indication that certain errors have been committed while recording the transactions
in the books of original entry or subsidiary books. It is our utmost duty to locate
these errors and rectify them, only then we should proceed for preparing final
accounts. We also know that all types of errors are not revealed by trial balance as
some of the errors do not effect the total of trial balance. So these cannot be located
with the help of trial balance. An accountant should invest his energy to locate both
types of errors and rectify them before preparing trading, profit and loss account and
balance sheet. Because if these are prepared before rectification these will not give
us the correct result and profit and loss disclosed by them, shall not be the actual
profit or loss.
All errors of accounting procedure can be classified as follows:

1. Errors of Principle
When a transaction is recorded against the fundamental principles of accounting, it is
an error of principle. For example, if revenue expenditure is treated as capital
expenditure or vice versa.

2. Clerical Errors
These errors can again be sub-divided as follows:

(i) Errors of omission

When a transaction is either wholly or partially not recorded in the books, it is an
error of omission. It may be with regard to omission to enter a transaction in the
books of original entry or with regard to omission to post a transaction from the
books of original entry to the account concerned in the ledger.
(ii) Errors of commission
When an entry is incorrectly recorded either wholly or partially-incorrect posting,
calculation, casting or balancing. Some of the errors of commission effect the trial
balance whereas others do not. Errors effecting the trial balance can be revealed by
preparing a trial balance.
(iii) Compensating errors
Sometimes an error is counter-balanced by another error in such a way that it is not
disclosed by the trial balance. Such errors are called compensating errors.
From the point of view of rectification of the errors, these can be divided into two
groups :
(i) Errors affecting one account only, and
(ii) Errors affecting two or more accounts.
Errors affecting one account
Errors which affect can be :

(a) Casting errors;

(b) error of posting;
(c) carry forward;
(cl) balancing; and
(e) omission from trial balance.
Such errors should, first of all, be located and rectified. These are rectified either
with the help of journal entry or by giving an explanatory note in the account
concerned.

Rectification
Stages of correction of accounting errors

All types of errors in accounts can be rectified at two stages:

(i) before the preparation of the final accounts; and
(ii) after the preparation of final accounts.

Errors rectified within the accounting period

The proper method of correction of an error is to pass journal entry in such a way
that it corrects the mistake that has been committed and also gives effect to the
entry that should have been passed. But while errors are being rectified before the
preparation of final accounts, in certain cases the correction can't be done with the
help of journal entry because the errors have been such. Normally, the procedure of
rectification, if being done, before the preparation of final accounts is as follows:

(a) Correction of errors affecting one side of one account Such errors do not let the
trial balance agree as they effect only one side of one account so these can't be
corrected with the help of journal entry, if correction is required before the
preparation of final accounts. So required amount is put on debit or credit side of the
concerned account, as the case maybe. For example:
(i) Sales book under cast by Rs. 500 in the month of January. The error is only in
sales account, in order to correct the sales account, we should record on the credit
side of sales account 'By under casting of. sales book for the month of January Rs.
500".I'Explanation:As sales book was under cast by Rs. 500, it means all accounts
other than sales account are correct, only credit balance of sales account is less by
Rs. 500. So Rs. 500 have been credited in sales account.
(ii) Discount allowed to Marshall Rs. 50, not posted to discount account. It means
that the amount of Rs. 50 which should have been debited in discount account has
not been debited, so the debit side of discount account has been reduced by the
same amount. We should debit Rs. 50 in discount account now, which was omitted
previously and the discount account shall be corrected.
(iil) Goods sold to X wrongly debited in sales account.
This error is effecting only sales account as the amount which should have been
posted on the credit side has been wrongly placed on debit side of the same account.
For rectifying it, we should put double the amount of transaction on the credit side of
sales account by writing "By sales to X wrongly debited previously."
(iv) Amount of Rs. 500 paid to Y, not debited to his personal account. This error of
effecting the personal account of Y only and its debit side is less by Rs. 500 because
of omission to post the amount paid. We shall now write on its debit side. "To cash
(omitted to be posted) Rs. 500.

Correction of errors affecting two sides of two or more

accounts
As these errors affect two or more accounts, rectification of such errors, if being
done before the preparation of final accounts can often be done with the help of a
journal entry. While correcting these errors the amount is debited in one
account/accounts whereas similar amount is credited to some other account/
accounts.
 Correction of errors in next accounting period
As stated earlier, that it is advisable to locate and rectify the errors before preparing
the final accounts for the year. But in certain cases when after considerable search,
the accountant fails to locate the errors and he is in a hurry to prepare the final
accounts, of the business for filing the return for sales tax or income tax purposes,
he transfers the amount of difference of trial balance to a newly opened 'Suspense
Account'. In the next accounting period, as and when the errors are located these
are corrected with reference to suspense account. When all the errors are discovered
and rectified the suspense account shall be closed automatically. We should not
forget here that only those errors which effect the totals of trial balance can be
corrected with the help of suspense account. Those errors which do not effect the
trial balance can't be corrected with the help of suspense account. For example, if it
is found that debit total of trial balance was less by Rs. 500 for the reason that
Wilson's account was not debited with Rs. 500, the following rectifying entry is
required to be passed.

Difference in trial balance

Trial balance is affected by only errors which are rectified with the help of the
suspense account. Therefore, in order to calculate the difference in suspense account
a table will be prepared. If the suspense account is debited in' the rectification entry
the amount will be put on the debit side of the table. On the other hand, if the
suspense account is credited, the amount will be put on the credit side of the table.
In the end, the balance is calculated and is reversed in the suspense account. If the
credit side exceeds, the difference would be put on the debit side of the suspense
account.
Effect of Errors of Final Accounts
1. Errors effecting profit and loss account
It is important to note the effect that an error shall have on net profit of the firm.
One point to remember here is that only those accounts which are transferred to
trading and profit and loss account at the time of preparation of final accounts effect
the net profit. It means that only mistakes in nominal accounts and goods account
will effect the net profit. Error in these accounts will either increase or decrease the
net profit.

How the errors or their rectification effect the profit-following rules are helpful in
understanding it :

(I) If because of an error a nominal account has been given some debit the profit will
decrease or losses will increase, and when it is rectified the profits will increase and
the losses will decrease. For example, machinery is overhauled for Rs. 10,000 but
the amount debited to machinery repairs account -this error will reduce the profit. In
rectifying entry the amount shall be transferred to machinery account from
machinery repairs account, and it will increase the profits.
(il) If because of an error the amount is omitted from recording on the debit side of a
nominal account-it results in increase of profits or decrease in losses. The
rectification of this error shall have reverse effect, which means the profit will be
reduced and losses will be increased. For example, rent paid to landlord but the
amount has been debited to personal account of landlord-it will increase the profit as
the expense on rent is reduced. When the error is rectified, we will post the
necessary amount in rent account which will increase the expenditure on rent and so
profits will be reduced.
(iil) Profit will increase or losses will decrease if a nominal account is wrongly
credited. With the rectification of this error, the profits will decrease and losses will
increase. For example, investments were sold and the amount was credited to sales
account. This error will increase profits (or reduce losses) when the same error is
rectified the amount shall be transferred from sales account to investments account
due to which sales will be reduced which will result in decrease in profits (or increase
in losses).
(iv) Profit will decrease or losses will increase if an account is omitted from posting in
the credit side of a nominal or goods account. When the same will be rectified it will
increase the profit or reduce the losses.
For example, commission received is omitted to be posted to the credit of
commission account. This error will decrease profits ( or increase losses) as an
income is not credited to profit and loss account. When the error will be rectified, it
will have reverse effect on profit and loss as an additional income will be credited to
profit and loss account so the profit will increase ( or the losses will decrease).
If due to any error the profit or losses are effected, it will have its effect on capital
account also because profits are credited and losses are debited in the capital
account and so the capital shall also increase or decrease. As capital is shown on the
liabilities side of balance sheet so any error in nominal account will effect balance
sheet as well. So we can say that an error in nominal account or goods account
effects profit and loss account as well as balance sheet.

2. Errors effecting balance sheet only

If an error is committed in a real or personal account, it will effect assets, liabilities,

debtors or creditors of the firm and as a result it will have its impact on balance
sheet alone. because these items are shown in balance sheet only and balance sheet
is prepared after the profit and loss account has been prepared. So if there is any
error in cash account, bank account, asset or liability account it will effect only
balance sheet.
 Problem : 1

Rectify the following errors :

Credit purchases from Raghu Rs. 20,000

(i) were not recorded.
(ii) were recorded as Rs. 10,000.
(iii) were recorded as Rs. 25,000.
(iv) were not posted to his account.
(v) were posted to his account as Rs. 2,000.
(vi) were posted to Reghav’s account.
(vii) were posted to the debit of Raghu’s account.
(viii) were posted to the debit of Raghav.
(ix) were recorded through sales book.

Solution
(i) Purchases A/c Dr. 20,000
To Raghu’s A/c 20,000
(Credit purchases from Raghu omitted to be recorded, now corrected)

(ii) Purchases A/c Dr. 10,000

To Raghu’s A/c 10,000
(Credit purchases from Raghu recorded as Rs. 10,000 instead of Rs
20,000,now corrected)

(iii)Raghu’s A/c Dr. 5,000

To Purchases A/c 5,000
(Credit purchases from Raghu recorded as Rs. 25,000 instead of
Rs. 20,000).

(iv) Suspense A/c Dr. 20,000

To Raghu’s A/c 20,000
(Credit purchases from Raghu not posted to his account now
corrected).

(v) Suspense A/c Dr. 18,000

To Raghu’s A/c 18,000
(Credit purchases from Raghu Rs. 20,000 posted to his account as
Rs. 2,000
(vi) Raghav’s A/c Dr. 20,000
To Raghu’s A/c 20,000
(Credit purchases from Raghu wrongly credited to Raghav, now
corrected)

(vii) Suspense A/c Dr. 40,000

To Raghu’s A/c 40,000
(Credit purchases from Raghu Rs. 20,000 wrongly posted to the debit
of his account, now corrected).

(viii) Suspense A/c Dr. 40,000

To Raghav’s A/c 20,000
To Raghu’s A/c 20,000
(Credited purchases from Raghu Rs. 20,000 wrongly debited to
Raghav, now corrected).

(ix) Sales A/c Dr. 20,000

Purchases A/c Dr. 20,000
To Raghu’s A/c 40,000
(Credit purchases from Raghu wrongly recorded through sales book,
now corrected).
 Problem : 2

Rectify the following errors :

Cash sales Rs. 16,000

(i) were not posted to sales account.
(ii) were posted as Rs. 6,000 in sales account.
(iii) were posted to commission account.

Solution
(i) Suspense A/c Dr. 16,000
To Sales A/c 16,000
(Cash sales not posted to sales account now rectified)

(ii) Suspense A/c Dr. 10,000

To Sales A/c 10,000
(Cash sales Rs. 16,000 were posted to sales account as Rs. 6,000,
now rectified)

(iii) Commission A/c Dr. 16,000

To Sales A/c 16,000
(Cash sales posted to commission account instead of sales account,
now corrected)
 Problem : 3

Depreciation written-off as the machinery Rs. 2,000

(i) was not posted
(ii) was not posted to machinery account
(iii) was not posted to depreciation account

Solution
(i) It was recorded through journal proper. From journal
proper posting to all the accounts are made individually.
Hence, no posting was made to depreciation account and
machinery account. Therefore, rectification entry will be :

Depreciation A/c Dr. 2,000

To Machinery A/c 2,000
(Depreciation on machinery not posted, now corrected)

(ii) In this case posting was not made to machinery account.

It is to be assumed that depreciation account should have
been correctly debited. Therefore, rectification entry shall
be :

Suspense A/c Dr. 2,000

To Machinery A/c 2,000
(Depreciation on machinery not posted to Machinery account, now
corrected).

(iii) In this case depreciation account was not been debited.

However, machinery account must have been correctly
credited. Therefore, rectification entry shall be :

Depreciation A/c Dr. 2,000

To Suspense A/c 2,000
(Depreciation on machinery not posted to Depreciation account, now
corrected).
 Problem : 4

Trial balance of Anurag did not agree. It showed an excess credit Rs.
10,000. Anurag put the difference to suspense account. He located the
following errors :
(i) Sales return book over cast by Rs. 1,000.
(ii) Purchases book was undercast by Rs. 600.
(iii) In the sales book total of page no. 4 was carried forward to page 5
as Rs. 1,000 instead of Rs. 1,200 and total of page 8 was carried
forward to page 9 as Rs. 5,600 instead of Rs. 5,000.
(iv) Goods returned to Ram Rs. 1,000 were recorded through sales
book.
(v) Credit purchases from M & Co. Rs. 8,000 were recorded through
sales book.
(vi) Credit purchases from S & Co. Rs. 5,000 were recorded through
sales book. However, S & Co. were correctly credited.
(vii) Salary paid Rs. 2,000 was debited to employee’s personal
account.

Solution
(i) Suspense A/c Dr. 1,000
To Sales Return A/c 1,000
(Sales returns book overcast by Rs. 1,000, now corrected).

(ii) Purchases A/c Dr. 600

To Suspense A/c 600
(Purchases book undercast by Rs. 600, now corrected)

(iii) Sales A/c Dr. 400

To Suspense A/c 400
(Error in carry forward of sales book, now corrected).

Note : Errors in carry forward the total of one page to another during
a period finally affects the total of that book resulting in error of
under/overcastting.

In this case, carry forward from page 4 to 5 resulted in undercasting of

Rs. 200 and carry forward from page 8 to page 9 resulted in
overcasting of Rs.600.Overall overcastting being Rs. 600–200 =Rs.
400.
(iv) Sales A/c Dr. 1,000
To Return Outwards A/c 1,000
(Return Outwards wrongly recorded through sales book, now
rectified).

(v) Purchases A/c Dr. 8,000

Sales A/c Dr. 8,000
To M & Co.’s A/c 16,000
(Credit purchases wrongly recorded through sales book, now rectified).

(vi) Purchases A/c Dr. 5,000

Sales A/c Dr. 5,000
To Suspense A/c 10,000
(Credit purchases wrongly recorded through sales book, however
suppliers account correctly credited, now rectified).

(vii) Salary A/c Dr. 2,000

To Employee’s personal A/c 2,000
(Salary paid wrongly debited to employee’s personal account, now
corrected)

Suspense Account
Dr. Cr.
Date Particulars J.V Amount Date Particulars J.V Amount
Rs. Rs.
Difference 10,000 Purchases 600
as per Sales 400
trial Purchases 5000
balance Sales 5000
Sales 1,000
return
11,000 11,000
 Problem : 5

Trial balance of Rahul did not agree. Rahul put the difference to
suspense account. Subsequently, he located the following errors :
(i) Wages paid for installation of Machinery Rs. 600 was posted to
wages account.
(ii) Repairs to Machinery Rs. 400 debited to Machinery account.
(iii) Repairs paid for the overhauling of second hand machinery
purchased Rs. 1,000 was debited to Repairs account.
(iv) Own business material Rs. 8,000 and wages Rs. 2,000 were used
for construction of building. No adjustment was made in the books.
(v) Furniture purchased for Rs. 5,000 was posted to purchase account
as Rs. 500.
(vi) Old machinery sold to Karim at its book value of Rs. 2,000 was
recorded through sales book.
(vii) Total of sales returns book Rs. 3,000 was not posted to the
ledger.

Rectify the above errors and prepare suspense account to ascertain

the original difference in trial balance.

Solution

(i) Machinery A/c Dr. 600

To Wages A/c 600
(Wages paid for installation of machinery wrongly debited to wages
account, now rectified)

(ii) Repairs A/c Dr. 400

To Machinery A/c 400
(Repairs paid wrongly debited to machinery account now rectified)

(iii) Machinery A/c Dr. 1,000

To Repairs A/c 1,000
(Repairs for overhauling of second hand machinery purchased, wrongly
debited to repairs account, now rectified).

(iv) Building A/c Dr. 10,000

To Purchases A/c 8,000
To Wages A/c 2,000
(Material and wages used for construction of Building, not debited to
building account).
(v) Furniture A/c Dr. 5,000
To Purchases A/c 500
To Suspense A/c 4,500
(Furniture purchased for Rs. 5,000 wrongly debited to purchases
account as Rs. 500, now rectified).

(vi) Sales A/c Dr. 2,000

To Machinery 2,000
(Sale of machinery wrongly recorded in sales book, now rectified).

(vii) Sales Return A/c Dr. 3,000

To Suspense A/c 3,000
(Total of sales returns book not posted to ledger, now rectified).

Suspense Account
Dr Cr
Date Particulars J.V Amount Date Particulars J.V Amount
Rs. Rs.
Difference 7,500 Furniture 4,500
as per Sales 3.000
trial return
balance

7,500 7,500

Hence, original difference in Trial Balance was Rs. 7,500 excess credited.
 Problem : 6

Trial balance of Anant Ram did not agree. It showed an excess credit
of Rs. 16,000. He put the difference to suspense account.
Subsequently the following errors were located:
(i) Cash received from Mohit Rs. 4,000 was posted to Mahesh as Rs.
1,000.
(ii) Cheque for Rs. 5,800 received from Arnav in full settlement of his
account of Rs. 6,000, was dishonoured. No entry was passed in the
books on dishonour of thecheque.
(iii) Rs. 800 received from Khanna, whose account had previously been
written off as bad, was credited to his account.
(iv) Credit sales to Manav for Rs. 5,000 was recorded through the
purchases book as Rs. 2,000.
(v) Purchases book undercast by Rs. 1,000.
(vi) Repairs on machinery Rs. 1,600 wrongly debited to Machinery
account as Rs. 1,000.
(vii) Goods returned by Nathu Rs. 3,000 were taken into stock. No
entry was recorded in the books.

Solution

(i) Mahesh’s A/c Dr. 1,000

Suspense A/c Dr. 3,000
To Mohit’s A/c 4,000
(Cash received from Mohit Rs. 4,000 wrongly posted to Mahesh as
Rs.1,000, now rectified)

(ii) Arnav’s A/c Dr. 6,000

To Bank A/c 5,800
To Discount Allowed A/c 200
(Cheque received from Arnav for Rs. 5,800 in full settlement of his
account of Rs. 6,000, dishonoured but no entry made in books, now
rectified)

(iii) Khanna’s A/c Dr. 800

To Bad debts recovered A/c 800
(Bad debts recovered wrongly credited to Khanna’s account, now
rectified)

(iv) Manav’s A/c Dr. 7,000

To Purchases A/c 2,000
To Sales A/c 5,000
(Credit sales to Manav Rs. 5,000 wrongly recorded through purchases
book as Rs. 2,000, now rectified)
(v) Purchases A/c Dr. 1,000
To Suspense A/c 1,000
(Purchases book undercast by Rs. 1,000)

(vi) Repairs A/c Dr. 1,600

To Machinery A/c 1,000
To Suspense A/c 600
(Repairs on machinery Rs. 1,600 wrongly debited to machinery
account as Rs. 1,000, now rectified)

(vii) Sales Return A/c Dr. 3,000

To Nathu’s A/c 3,000
(Sales return from Nathu not recorded)

Suspense Account

Date Particulars J.V Amount Date Particulars J.V Amount

Rs. Rs.
Difference as Purchases 1,000
per trial 16,000 Repairs 600
balance Balance c/d 17,400
Mohit 3,000
19,000 19,000

Note : Even after rectification of errors suspense account is showing a

debit balance of Rs. 17,400. This is due to non-detection of errors
affecting trial balance. Balance of suspense account will be carried
forward to the next year and will be eliminated as and when all the
remaining errors affecting trial balance are located.
 Rectification of error in Tally

Rectification of error in Tally is very simple and prompt effective on your final
accounts of company. You can easily rectify your voucher entry with only two
easy steps

1st step

reaching on voucher entry alteration mode :-

Display >> Daybook >> select the date >> Select The Voucher
Entry
 nd
2 step

Correct the mistake of voucher entry in it :-

Mistake may be wrong journal entry or mistake may be wrong choosing of voucher .
Or mistake of feature or configuration setting .All these are corrected here and
accept this .