Rectification of errors

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Presentation Description

Humans can make unintentional errors, but in Accounting, there is an option to make a Rectification entry for the errors. Some errors affect the Trial Balance, some not Rectification of errors depends on the timing of its detection: 1.Errors detected before preparation of Trial Balance are corrected by "Writing a Narration" for Single Sided Errors & " Rectified entry for Double Sided Error" 2. Errors detected after Trial Balance : by " Opening Suspense A/C for Single Sided Errors" " Rectification Entry" 3. Errors detected in Next accounting period : Through P&L Adjustment Accounts

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Presentation Transcript

Slide1:

RECTIFICATION OF ERRORS

Concept:

Trial Balance(Verifies the arithmetical accuracy) may not Agree/tally Because of some errors committed while recording/Classification stage Errors are unintentional mistakes The trail may agree ( even after some errors) as some does not affect the trial balance Concept

Slide3:

Errors can be of Two Types

Slide4:

Types of Errors (Sides/Impact Point of View) Single Sided Errors Double sided Errors Error with only one Errors with both the Side(Dr/Cr) of Entry sides Affect Trial Balance Do not affect Trial Balance

Types of Errors (by Nature):

Principal Errors ( Rules, Concepts) Clerical Errors Omission Errors Compensatory Error Commission Errors Types of Errors (by Nature)

Principal Errors:

Transaction in contravention of accounting principles Error in recognizing Capital/Revenue Transactions Does not affect the Trial Balance Principal Errors

Examples:

Wages for construction of building, debited to wages A/c Purchase of Fixed Asset debited to Purchases A/c Regular repairs of building, debited to Building A/C Examples

Omission Errors:

Not considering a transaction Full Omission Partial Omission Both Aspects(Dr/Cr) Entry not posted During Recording During Posting (not entered in Journal at all) Not affect the Trial Balance Affect the Trial Balance. Omission Errors

Commission Error:

Silly mistakes because of carelessness Errors may relate to a wrong amount, Correct amount in Wrong Account/Side While Journalizing, Ledger posting , Casting, Balancing or Carry forwarding May/ may not affect the Trial Balance Generally these affect Trial Balance Commission Error

Compensatory Errors:

Effect of errors is cancelled The second error compensate the impact of the first error Do not affect the Trial Balance Compensatory Errors

Rectification of Errors:

Rectification method depends on the Timing of detection of an error Before After Final Accounts Trail Balance (in next period) After Trial Balance (Before Final Accounts) Rectification of Errors

Rectification of Errors:

Double sided Errors- Rectified by a Rectifying Journal Entry Single Sided Errors Suspense A/c P&L Adj. A/c (After Tr. Bal.) (Next Period) Narration/ Rectification statement Without Suspense A/c (before Tr. Bal.) Rectification of Errors

Illustration (Single sided Error):

Sales Book is Undercast by 1,500 If after Tr. Bal. Journal Entry : Debit : Suspense A/c Credit : Sales A/c If detected before Tr. Bal. Cr. Side(Sales A/c) - Undercasting of Sales book – 1,500 Illustration (Single sided Error)

Illustration (Single sided Error):

` 250 written off as depreciation on Machinery has not been debited to Depreciation Account Goods purchased of ` 300 have bee posted to the debit of Supplier X. Purchase of `67 has been posted to the Trade Payables Account as ` 60. Illustration (Single sided Error)

Rectification of Double Sided Error:

Pass the wrong entry Reverse the Wrong Entry pass the correct entry pass the Rectification entry (comparing the second & third Entry). Rectification of Double Sided Error

Illustration:

The purchase of machinery for ` 2,000 has been entered in the purchases book Wrong Entry: Purchases Account Dr. 2,000 To Trade Payable 2,000 Reverse Entry: Trade Payable Dr. 2,000 To Purchases Account 2,000 Correct Entry: Machinery Account Dr. 2,000 To Trade Payable 2,000 Rectifying Entry: Machinery Account Dr. 2,000 To Purchases Account 2,000 Illustration

Errors (Detected in next Period):

Rectifications done through “ P&L Adjustment A/c/Prior Period Items A/c (Error’s ultimate effect on P&L A/c is considered) ” Wages of ` 2,500 paid for the installation of machinery charged to wages account(detected next year) Rectification entry Machinery Account Dr. 2,500 To Profit and Loss Adjustment Account 2,500 Errors (Detected in next Period)

MCQs:

Q.1. Errors of commission do not permit MCQs

MCQs:

Q.2. If depreciation is excess charged by Rs.500 and closing stock is understated by Rs.500, the net profit will be _____ due to these errors MCQs

MCQs:

Q.3. Sale of old furniture is erroneously entered in sales book. Rectification entry will be: MCQs

MCQs:

Q.4. Which of the following errors will affect the trial balance? MCQs

MCQs:

Q.5. In case trial balance does not agree, difference is put to MCQs

MCQs:

Q.6. On purchases of old furniture, the amount spent on its repair should be debited to MCQs

MCQs:

Q.7. Goods worth Rs.272 returned by Lala passed through the books as Rs.722. The rectification entry is – MCQs

MCQs:

Q.8. Commission paid to Mr. Dixit Rs.225 was posted twice to Commission account. The rectification is done by – MCQs

MCQs:

Q.9. Rectification of which types of errors requires opening of suspense A/c. MCQs

MCQs:

Q.10 Rs. 51000 received from Mohan but credited to Sohan A/c. This is an error of __. MCQs

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