CHAPTER 3

RECTIFICATION OF ERRORS

BY
PROF. SUKU THOMAS SAMUEL
DEPARTMENT OF MANAGEMENT
 ERROR – MEANING

An error is generally a mistake committed by an accountant

unintentionally.
• An accounting error is an error in the process of systematically
recording, measuring and communicating information about financial
transactions.
• The mistake may be one relating to routine or one relating to
principle.
• An error may arise due to the huge volume of transactions.
 ERROR – CAUSES

The causes of error as follows:

– Lack of Accounting Knowledge
– Carelessness of Accountant
– Lack of Sound Internal Check System
– Computer Flaws
 TYPES OF ERRORS

• Error of Omission
• Error of Commission
Based on Nature • Error of Principle
• Compensation Error
• Error of Duplication

Error based on effect on • One Sided Errors

Trial balance • Two Sided Errors
 Financial transaction that does not appear in the
TYPES
Error OF ERRORS
of Omission – BASED ON NATURE
documentation or is not recorded by mistake, failing to
record the item altogether.

When a transaction has been recorded but has been

Error of Commission wrongly entered either in the books of original entry or
ledger

An error of duplication arises when the same transactions

Error of Duplication has been recorded twice in the book of original entry and
hence posted twice in the same ledger account

An error of principle arises when the entries are not

Error of Principle recorded according to the fundamental principles of
double entry

A compensating error is an error which is counter balanced

Compensating errors by another error
ERROR BASED ON EFFECT ON TRIAL BALANCE

One-sided Error: One-sided errors are those errors which affect the
agreement of the trial balance. These errors affect only one account and only
one side i.e., debit or the credit side of the account. Errors of partial omission,
recording transactions with wrong casting and wrong posting are examples of
one-sided errors.
 Examples
– Posting an item to the wrong side of the correct ledger account
– Posting an item to the wrong side of a wrong ledger account
– Posting an item twice to an account
– Transferring a wrong total from one place to another
– Omitting to include an account in the trial balance
ERROR BASED ON EFFECT ON TRIAL BALANCE

Two-sided Error: Two-sided errors are those errors which do not

affect the agreement of the trial balance. These errors are occur in two
or more accounts. Such errors are rectified by passing journal entries.
 Examples
– Omission to record a transaction in a journal
– Entering transactions in two subsidiary book
– Entering wrong amount in the correct subsidiary book
– One error compensated by another error
– Recording a transaction against the fundamental principles of
accounting
 ERROR RECTIFICATION RULES

ERROR RECTIFICATION
Under debited
Debit
Over credited
Under credited
Credit
Over debited
 SUSPENSE ACCOUNT

Suspense account is an account opened when trial balance does

not tally.
• Used to rectify the error.
• Difference amount is transferred to the suspense account.
• Helps the accountant to identify the error.
• Rectification entries are passed accordingly.
 STEPS FOR RECTIFICATION

Identify the
Identify the Impact of the Rectification
nature – one
error error entry
or two sided
 ENTERIES FOR RECTIFICATION OF ERRORS

1. Sum of Rs 500 received from Shibin has been credited to his

account as Rs 150.
2. Sale of Rs 1,000 has credited to Sales account as Rs 100.
3. Sum of Rs 500 paid for interest has been credited to interest
accounts.
4. Purchase of machinery of Rs 500 has been debited to
Purchase account.
 RECTIFICATION OF ERRORS – QUESTION 1
Rectify the following errors.
• Typewriter purchased for Rs. 5,800 has been wrongly debited to purchase
account
• An amount of Rs. 10,000 received on sale of an old machinery has been
credited to sales a/c
• An amount of Rs. 1,000 withdrawn by the owner has been debited to general
expense account.
• A sum of Rs. 15,000 received from Sharma has been credited to Verma.
 RECTIFICATION OF ERRORS – QUESTION 2
An accountant could not tally the trial balance. The difference was
temporarily place to suspense account for preparing the final account. The
following errors were later discovered.
1. The sales book was under cast by Rs. 350
2. Commission of Rs. 25 paid was posted twice, once to discount account and
once to commission account.
3. A sales of Rs. 139 to Ramnath, through correctly entered in the sales book, was
posted wrongly to his account as Rs. 192
4. A sum of Rs. 500 paid for interest has been credited to interest account.
5. A sum of Rs. 600 written off as depreciation on furniture has been debited to
deprecation account but no corresponding credit is given to furniture account
6. A payment of salary Rs. 3,000 has been posted twice to salaries account.