Everyone knows that errors are inescapable especially in the works involving human efforts. Errors are like a disease in the working system. Accounting is also subject to a lot of errors. Just like medicines help in treating the diseases, accounting techniques help in rectifying the problem in the accounts. There are different ways and steps to rectify different kinds of errors. In this article, we will at the process of rectification of various kinds of errors in the accounts under different situations.
Suggested Videos
Process of Rectification of Errors
1. In the case of One-Sided Errors
One-sided errors affect only one account. Hence, we assume that another account related to the entry is correctly recorded. Let’s take an example: Cash paid to Mr.Gupta Rs.2000, debited to Mr.Gupta’s A/c as Rs.200
There can be 3 different situations in the accounting process at the time of acknowledgment of the error, which are:
(a) Before the preparation of the Trial Balance
(b) After Trial Balance but before preparing Final Accounts
(c) After the preparation of the Final Accounts
| Situation | What to Do? | Explanation |
| Before the preparation of the Trial Balance | We will find the shortfall in the debit balance of Mr. Gupta’s A/c and post it on the debit side of the account. In this case, it will be Rs.1,800 | Only Gupta’s A/c was having an ‘under debiting’ error of Rs.1,800. That is why we will rectify only his account and his ledger account only. |
| After Trial Balance but before preparing Final Accounts | Debit Gupta and Credit Suspense A/c with Rs.1,800 | At the time of preparation of Trial Balance, there will be a shortage of Rs.1800 on the debit side. In order to match it artificially, we open a Suspense account. Through rectification, we will abolish the Suspense A/c |
| After the preparation of the Final Accounts | Debit Gupta and Credit Suspense A/c with Rs.1,800 | In this case, there won’t be any change in the rectification because there is no involvement of a nominal account. In case of a nominal account, we have to rectify the Profit and Loss Account also. |
Special Mention: In this case, we assume that the Cash A/c is correctly recorded.
Browse more Topics under Rectification Of Errors
- Types of Errors
Learn more about Different Types of Errors here in detail.
2. In the case of Two-Sided Errors
Two-sided errors involve two accounts at the same point of time. So, we have to make changes both the accounts. Let’s take an example: Cash paid to Mr.Gupta Rs.2000, debited to Mr.Raman’s A/c
| Situation | What to Do? | Explanation |
| Before the preparation of the Trial Balance | Debit Gupta and Credit Raman with Rs.2,000 | Wrong account debited is now credited. Also, the right account is debited. |
| After Trial Balance but before preparing Final Accounts | Debit Gupta and Credit Raman with Rs.2,000 | There is no effect of two-sided errors on the Trial Balance. Hence, there will be no Suspense A/c. |
| After the preparation of the Final Accounts | Debit Gupta and Credit Raman with Rs.2,000 | In this case, there won’t be any change in the rectification because there is no involvement of the nominal account. In case one of the accounts is a nominal account, we will rectify the P&L A/c. In case if both the accounts are nominal, then we will not affect the P&L A/c. |
Special Mention: In this case, we assume that the Cash A/c is correctly recorded.
3. In the case of Error of Principle
Under error of Principle, accounting principles are wrongly applied. Let’s take an example: Wages paid Rs.1,500 for the installation of a new machine has been debited to the ‘Wages A/c’.
| Situation | What to Do? | Explanation |
| Before the preparation of the Trial Balance | Debit Machinery and Credit Wages A/c with Rs.1,500 | This is a two-sided error. Hence, both the accounts are rectified. |
| After Trial Balance but before preparing Final Accounts | Debit Machinery and Credit Wages A/c with Rs.1,500 | There won’t be any effect on the matching of the Trial Balance. hence, there will be no Suspense Account. |
| After the preparation of the Final Accounts | Debit Machinery and Credit Profit and Loss Adjustment A/c with Rs.1,500 | Since the transaction involves a nominal account, P&L balance needs to be changed. Hence, P&L Adjustment account is credited. It is because the wages account reduces the profits of the organization. |
4. In the case of Error of Omission
An error of Omission is such kind of error in which the accountant forgets to post a transaction either partially or completely. In such error, no different entries are made under different situations. Under this case, the accountant will record the transaction as soon as he comes to know about it. Let’s take an example: Cash paid to Mr.Verma Rs.1,000 is not recorded in the books of accounts.
| Date | Particulars | L.F. | Amount Dr. | Amount Cr. |
| Verma Dr. | 1,000 | |||
| To Cash A/c | 1,000 |
Note: In this case, the Trial Balance is not at all affected because there is no entry made on either side of the books of accounts. Moreover, there will be no existence of the suspense account in the books of accounts. The same treatment prevails in all the different situations.
5. In the case of Error of commission
Under this error, mostly error of posting takes place. In order to counter this, the accountant follows the same procedure as in the case of one-sided errors. Let’s take an example: Cash paid to Mr.Verma Rs.2000, debited to Mr.Verma’s A/c as Rs.200
| Situation | What to Do? | Explanation |
| Before the preparation of the Trial Balance | We will find the shortfall in the debit balance of Mr. Verma’s A/c and post it on the debit side of the account. In this case, it will be Rs.1,800 | Only Verma’s A/c was having an ‘under debiting’ error of Rs.1,800. That is why we will rectify only his account and his ledger account only. |
| After Trial Balance but before preparing Final Accounts | Debit Verma and Credit Suspense A/c with Rs.1,800 | At the time of preparation of Trial Balance, there will be a shortage of Rs.1800 on the debit side. In order to match it artificially, we open a Suspense account. Through rectification, we will abolish the Suspense A/c |
| After the preparation of the Final Accounts | Debit Verma and Credit Suspense A/c with Rs.1,800 | In this case, there won’t be any change in the rectification because there is no involvement of a nominal account. In case of a nominal account, we have to rectify the Profit and Loss Account also. |
Solved Question For You
Question: What are the types of Errors in Accounting?
Ans-
- Error of omission — a transaction that is not recorded.
- Error of commission — a transaction that is calculated incorrectly. …
- Error of principle — a transaction that is not in accordance with generally accepted accounting principles ( GAAP).
Leave a Reply