Rectification of Errors

Accountants can commit mistakes while recording the transaction, or posting to the ledger or
while preparing the trial balance. Now, errors need to be rectified so that financial statements
can disclose the true profit/loss of the business and Balance sheet can disclose the true and fair
view of the financial position of the business.
But after locating the errors, it should be not be rectified merely by overwriting or erasing as it
reduces the credibility of the records and gives the impression that something is not right.
We discussed in the last chapter that when trial balance is not tallied, it means some errors has
been committed in the accounting of transactions but even if trial balance is tallied, it is not a
conclusive proof of the accuracy of the recording of transactions. There can be errors which does
not affect the trial balance and there can be errors which affects the trial balance.
All the errors can be classified into four main categories:

Error of
Omission

Error of Error of
Principle Errors Commission

Compensating
Errors

1) Error of Omission: If a transaction is omitted to be recorded in the books of accounts,

then it means error of omission is committed. This error can be of two types:
a. Error of complete omission: If a transaction is completely omitted to be recorded
in the Journal or Subsidiary books. For example, goods purchased for Cash
Rs. 10,000 is completely omitted to be recorded in the Cash book.
 Such errors do not affect the Trial Balance.
b. Error of Partial omission: Error where part of transaction is omitted to be
recorded. For example: goods purchased in cash is recorded in the cash book
but not posted to the purchases A/c.
 Such errors affect the Trial Balance
 2) Error of Commission: These are the clerical errors which arise due to recording of
wrong amount in journal, wrong posting of transactions, wrong totalling, wrong
balancing of accounts, wrong carry forward etc. For example:
a. Goods purchased from Pinku Rs. 5,000 is recorded as Rs. 50,000.
b. Cash book is totalled as Rs. 10,000 instead of Rs. 1,00,000
c. Sales book is carried forward as Rs. 5,000 instead of Rs. 50,000
d. Purchase book balance is posted in the sales account instead of purchase A/c
 Such errors may or may not affect the Trial Balance

3) Error of Principle: When accounting concepts or conventions is violated while

recording the transaction. For example:
a. Treating revenue expenditure as capital expenditure. Ex: Repair expenses of
machinery is debited to Machinery A/c.
b. Treating capital expenditure as revenue expenditure. Ex: Purchase of
Machinery is debited to Repair expenses A/c.
 Such errors do not affect the Trial Balance.

4) Compensating Errors: If the effect of errors committed is cancelled out by each other
then those errors will be called compensating errors. For example: Pinku’s account
was debited with Rs. 1,000 instead of Rs. 100 and Mimi’s account is debited with Rs.
100 instead of Rs. 1,000.
 Such errors do not affect the Trial Balance.
Errors can also be divided into following 2 categories:
1) Errors which affect the Trial balance: These errors affect only one account and
therefore the debit and credit column of the Trial balance do not agree.
a. Wrong casting of Subsidiary Book
b. Wrong balancing of an Account
c. Posting an amount on the wrong side of the account.
d. Posting the wrong amount
e. Omission to post an amount from a subsidiary book
f. Omitting to write the balance of any account in the Trial balance
g. Writing the balance of in wrong column of the Trial Balance

2) Errors which do not affect the Trial Balance: These errors affect both the aspect i.e.,
debit and credit side of an account and therefore there is no effect on the Trial balance.
Such errors are not disclosed by the trial balance.
a. Omission to record the transaction in Journal or Subsidiary Books.
b. Making an entry with the wrong amount in the subsidiary books.
c. Posting an amount in wrong account but on the correct side.
d. When revenue expenditure is treated as Capital or vice-versa
 e. Compensating error.
How to Rectify the Errors??
Rectification of Error depends upon their detection and type of error. All the errors at
different stages can be classified into the following categories:
1) Rectification of Error before the preparation of Trial Balance
2) Rectification of Error after the preparation of Trial Balance but before the preparation
of Final Accounts
3) Rectification of Error after the preparation of Final Accounts

Rectification of Errors before preparation of Trial Balance

When errors are detected before preparation of Trial Balance, it is important to determine
whether the errors are two-sided errors (affecting two accounts) or one-sided errors (affecting
only one account).
Errors which affect only one account i.e., one-sided errors
One-sided errors affect only one account so Trial balance is not tallied in case of one-
sided errors. Since, only one account is involved therefore no journal entry can be made
to rectify such errors. Such errors are rectified by giving an explanatory note or
rectification statement.
For example:
1) The purchase book is undercast by Rs. 500. The effect of this error is that purchase
account has been debited short by Rs. 500. This means all other postings are correct,
there is no mistake in posting to the personal accounts. This error will be rectified by
debited the purchase account by Rs. 500 and writing “To undercasting of purchase
book”
Purchase A/c
Date Particulars Amount Date Particulars Amount
To Undercasting 500
of purchase book

2) Rs. 1,000 received from Pinku has been entered by mistake on the debit side of Pinku
account. In this error, the only mistake is in Pinku’s account, his account should have
been credited and not debited. Now, to rectify this mistake, Pinku’s account has to be
credit by Rs. 2,000.
Pinku Account
Date Particulars Amount Date Particulars Amount
By Posting on 2,000
wrong side
3) Rs. 20,000 paid to Mimi has been recorded on the credit side of Cash Account but
omitted to be recorded in the Mimi Account.
Mimi Account
Date Particulars Amount Date Particulars Amount
To Omission of 20,000
Posting

4) Rs. 532 paid to Ramu has been debited to his account as Rs.523 but cash account is
credited with correct amount
Ramu Account
Date Particulars Amount Date Particulars Amount
To Miskate in 9
posting

5) Return inward Book is undercasted by Rs. 1,000

Return Inward Account
Date Particulars Amount Date Particulars Amount
To Undercasting of 1,000
Return inward Book

6) Credit sale of Rs. 151 to Pinku, correctly entered in the sale book , is posted as Rs.
115
Pinku Account
Date Particulars Amount Date Particulars Amount
To difference in 36
amount posted

7) Debit balance of Rs. 5,000 was carried forward as a credit balance in Ramesh’s
account
Ramesh Account
Date Particulars Amount Date Particulars Amount
To wrongly carried as 10,000
credit balance

8) Purchases of Rs. 6,580 from Naman posted to his account as Rs. 8,560
Date Particulars Amount Date Particulars Amount
To excess credit for 1,980
purchases
9) Credit purchase of furniture of Rs. 10,000 from Pinku was posted in his account as
Rs. 1,000
Pinku Account
Date Particulars Amount Date Particulars Amount
By short credit for 9,000
purchase of furniture

10) Rs. 2,500 written off as depreciation on Machinery is not debited to the
Depreciation account.
Depreciation Account
Date Particulars Amount Date Particulars Amount
To omission of posting 2,500

Errors which affect two or more accounts

These errors are committed in two or more accounts. Such errors are also known as Two
sided errors. They can be rectified by recording a journal entry giving the correct debit
and credit to the concerned accounts.
Two sided errors can be classified into 4 parts:
1) Error of Recording ( Journal or Subsidiary Books me Mistake)
If any error is committed while recording the transaction in Journal or Subsidiary
Book, then such error affects at least two accounts.
For examples:
i. Credit sale of ₹ 570 to Pinku was recorded as ₹ 750.
ii. Credit sale of ₹ 850 to Pinku was recorded as sale to Mimi.
iii. Credit sale of ₹ 850 to Pinku was recorded in the Purchases Book.
iv. Credit sale of old machinery to Ramu for ₹ 1,700 was entered in the Sales Book as
₹ 7,100
v. Bill Receivable for ₹ 5,000 accepted by Mimi recorded as acceptance given to Mimi
for ₹ 6,000.

2) Error of posting to Wrong account

i. Cash sale of ₹ 850 to Meenu was posted to the credit of Meena.
ii. Amount of ₹ 1,500 withdrawn from bank by the proprietor for his personal use
was debited to Purchases Account.
iii. Credit sale of old furniture to Babu Ram for ₹ 3,000 was credited to Sales Account.
iv. Cheque of ₹ 1,280 received from Farid was dishonored and has been posted to the
debit of Sales Return Account.
v. Rs. 10,000 salary paid to Pinku, an employee, debited to his personal account.
vi. A discounted bills of exchange receivable for Rs. 8000 returned by the firm’s bank
has been credited to bank account and debited to bills receivable account.
vii. Return inwards of Rs. 2000 has been debited to purchase return account.
viii. Depreciation of Rs. 10,000 on furniture account has been debited to Repair
expense A/c.

3) Error of Principle
i. ₹ 15,000 paid as wages for the construction of office building debited to Salaries
Account.
ii. ₹ 10,000 paid by cheque for a printer was charged to the Office Expense Account.
iii. ₹ 1,000 paid as installation charges for newly purchased second hand machinery
posted to Cartage Account.
iv. ₹ 50,000 spent on the extension of building was debited to Building Repairs
Account.
v. ₹ 10,000 paid as repairing charges on the reconditioning of a newly purchased
second hand machinery debited to General Expenses Account

4) Errors of Complete Omission

i. Goods returned by Mohan of ₹ 1,500 not recorded in books.
ii. Goods costing ₹ 780, selling price ₹ 1,000 given as charity not recorded.
iii. Goods distributed as free samples for ₹ 5,000 not recorded
Miscellaneous
i. Cash received from Rajesh ₹ 2,150 was credited to Brajesh
ii. Purchase of goods from Ram amounting to Rs. 1500 has been wrongly passed
through the sales book
iii. Goods returned from Pinku Rs. 1,000 were recorded in purchase book.
iv. A cheque of Rs. 1,500 received from Dipanshu was dishonored and has been
posted to the debit side of ‘Allowance A/c’.
v. An amount of Rs. 500 from Harish Bros. which has been written off as Bad-debt
in previous year, was unexpectedly recovered, and has been credited to the personal
account of Harish Bros.