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How to Rectify Errors

>> July 30, 2010

Rectification of errors in accounting is not so easy because first of all we have to find mistakes. Sometime errors may be very small and hidden from our eyes. So, it is very necessary to use a very step by step procedure for rectification of errors.

1st Step : Divide the Rectification of errors into sub parts

For easily rectification of errors, we divide rectification of errors into sub parts.

a) Errors affecting one account

All mistakes like errors of commission, errors of posting and errors of balancing affect the one account and after watching ledger of account through internal auditing system, you can find the errors and correct it without any delay.

b) Errors affecting two or more accounts

After deep review of ledger accounts and journal and subsidiary books, we can find errors which affect two accounts. Even by making trial balance, we can not find these errors. Errors of principles and errors of omission are its main example. By rectify journal entry, we can correct these errors.

2nd Step : To Fix the Stages of Rectification of Errors

a) Before making trial balance

This is the first stage in which before making trial balance, we correct all our accounting mistakes.

b) After making trial balance and before making final accounts

Before making final accounts, if you want to correct your accounting error, you have to pass such rectify entry so, that effect of mistake will be zero on final accounts.

For example

You have written less Rs. 500 in the total of sale book. This error can affect trial balance. After finding this error, we can understand that this error is affecting only sale account, so in the credit side of sale account, we have to write Rs. 500 amount by writing “By rectification of undercasting”

You must remember,

i) What should be correct entry?

ii) What is wrong entry done?

iii) To find in which account, there is mistake?

iv) What should be rectify entry

Suppose, we purchase machinery of Rs. 5000 and entered into purchase account. Now we follow above steps

i) Machinery Account Dr. 5000
To cash Account 5000

ii) Purchase account Dr. 5000
To cash account 5000

iii) Mistake in only purchase account

iv) Machinery Account Dr. 5000
To Purchase Account 5000

c) After making final accounts

If before making final accounts, auditor did not find the errors of accounting, we have to open a new account and its name is suspense account. This account shows the amount of error which did not find and this account is opened for matching our trial balance and balance sheet. Now next year, if we find where is mistake and we close our suspense account by rectification entry. For example, in the next accounting year, we find that debit side of previous trial balance’s debit side was less of Rs. 200 and same amount was transferred to suspense account. But this year, we find its reason. Reason is that we did not we did not debit the amount of sale in the debit of Ram’s account. Now this is one sided error because we had written correct amount in sale account. So we rectify this error by passing following rectification entry.

Ram Account Dr. 200

To Suspense account 200

If there are many errors, we have to open suspense account and we can close suspense account after rectification all errors. If there are still some errors which did not find, we will show closing balance of suspense account in this years trial balance.

Step 3. : Follow  Rectification of Errors  Rules

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Anonymous,  December 8, 2012 at 8:21 AM  

thank you sir...:)

Anonymous,  January 14, 2013 at 6:00 AM  

helpful for me. I can start with this basic knowledge. Thank you

amit bharati May 23, 2014 at 7:11 PM  

it helped me a lot than damn book thanks

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