Rectification of Errors - Principles of Accounting

7/27/2019 Rectification of Errors - Principles of Accounting

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Accounting Balance Sheet Business Credit Debit Credit

Rectification of errors

Rectification of errors and suspense account

While recording the transactions in the journal, posting them to the ledger accounts, casting or at the

time of balancing the accounts, there are chances for errors. Such errors are to be found out and

corrected in the books of the business

Correction of errors After the errors are found out from the books, those should be corrected. The

correction of errors is to be done by passing correction entries or rectification entries in the general

journal.

The preparation oftrial balance is the test of arithmetical accuracy of the ledger accounts prepared under

double entry system. It proves the equality of debit and credit.

A trial balance, which agrees, indicates that for every debit there has been an equivalent credit entry or

entries. It does prove that all the entries are for the correct amount or made to the correct account

Types of errors which do not affect the agreement of the trial balance

1. Errors of omission: Where a transaction is completely omitted from the books

(Journal or ledger). E.g. a sales invoice $ 245 to Bolton was completely omitted from the accounts.

2. Errors of commission. Where a correct amount is entered in wrong persons account, for E.g. Credit

purchase from C. Clint has been recorded in the account of C. Clintons account.

3. Errors of principle: Where an item is entered in wrong class of accounts, E.g. Purchase of plant had

been debited to purchase account instead of debiting to plant account.

4. Compensating errors: Where errors cancel out each other, for E.g. Sales account was overcast by $

500 at the same time the purchase account was also overcast by $500, and then the effect of these

errors would cancel out in the trial balance

5. Errors of original entry: Where the original figure is incorrect but recorded in the correct original

entry. Eg. Credit sales of goods$ 400 was calculated in the invoice as $ 300 and recorded in the same

journal.

6. Complete reversal of entries: This occurs where the entries for transactions are reversed- the

account which should be credited is debited and the account which should be debited is credited. Eg. The

purchase of stationery for $ 200 for cash debited to cash and credited to stationery.

7. Transposition errors: Where the wrong sequence of the individual characters within a number was

entered. E.g. An amount of a transaction $ 172 was entered in the accounts as $127

One way to help remember the six errors is to memorize COPCORT

Commission

Omission

Principle

Compensating

Original entry

Reversal

Transposition

Types of errors which do affect the agreement of the trial balance

The following errors will stop the trial balance from agreeing because debit does not equal to credit.

1. Incorrect addition to any accounts

2. Making an entry only on one side of one account i.e. Entering debit but not credit or entering debit but

not credit.

3. Entering a different amount on the debit side from the amount on the credit side

4. The double entry has been inaccurate. E.g. Cash sales $15 cash account debited with $5 and sales

account credited with $15.

5. Two debit or two credit entry has been made.

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Casting: means adding figures.

Overcastting: means incorrectly adding a column of figures to give an answer which is greater than

it should be.

Under casting: means incorrectly adding a column of figures to give an answer which is less than it should

be.

Suspense account: This is the account opened in the books of the business to show the difference

in trial balance, when it disagrees. When the errors are found out, the correction is made to suspenseaccount and it will be automatically cancelled.

Key points

Assets and expenses always debit

Liabilities and incomes always credit

MCQ

A. Commission B. Principle C. Omission D. Transposition

2. The purchases account was added up too much by $ 100 and sales account also added

up too much by $ 100. What kind of error is this?

A. Commission B. Principle C. Omission D. Compensating

3. A cash receipt from Moorthy was debited to Moortyhys account and credited to cash

account. What kind of error is this?

A. Error of omission B. Error of commission

C. complete reversal of entries D. Transposition errors

4. A cash purchase of goods was completely omitted from the books of the business.

What kind of error is this?

A. Commission B. Principle C. Omission D. Compensating

5. Goods sold on credit to Saani had been debited to Sonis account. What kind of error is this?

A. Commission B. Principle C. Omission D. Transposition.

6. A sale of goods $ 250 to E.Ellis on credit had been completely omitted from the books.

What is the entry to correct this error?

7. Sale of machinery had been recorded in the sales account.

What would be the entry to correct this error?

8. A sale of goods to Jeena $ 38 was entered in the books as $ 28.

How should this error be corrected?

Nature of balances of each class of accounts

To increase the balance of an account with debit balance debit the account.

To decrease the balance of an account with debit balance credit the account.

To increase the balance of an account with credit balance credit the account.

To decrease the balance of an account with credit balance debit the account.

The journal entries passed in the general journal to correct the errors found in the books of the

business are known as rectification entries.

The action to be taken for rectification of errors in the case of undercasting and overcasting of

accounts

Nature of balance In case of undercasting In case of overcasting

Account with a debit

balance

Dr. Account involved

Cr. Suspense account

Dr. Suspense account

Cr. Account involved

Account with credit

balance

Dr. Suspense account

Cr. Account involved

Dr. Account involved

Cr. Suspense account

1. Purchase of machinery was entered in the purchase account. What type of error was this?

1. Debit sales account $ 250 and credit E.ellis $ 2502. Debit E.Ellis $ 250 and credit sales account $ 250

3. Debit cash account $ 250 and credit sales account $ 250

4. Debit bank account $ 250 and credit sales account $ 250

1. Debit sales account and credit machinery account

2. Debit machinery account and credit sales account

3. Debit cash account and credit machinery account

4. Debit machinery account and credit cash account


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9. A payment of cash $ 300 to M.Meenu was entered on the debit side of the cash book

and credit side of M.Meenu account. What entry is required to correct this error?

10. Closing stock was overvalued by $ 1400. What is the effect of this error on cost of goods sold?

A. Overstated by $ 1400 B. Understated by $ 1400

C. No effect D. Overstated by $ 2800

11. A purchase of fixed assets $ 300 was debited to the purchases account.

What would be the effect of this error?

12. After which error will a trial balance still balance?

A. Purchase book was overcast by $ 200

B. Sales book was under cast by $ 300

C. Rent paid by cash $ 400 debited rent account onlyD. Purchase of machinery $ 1000 was debited to purchase account and credited

to cash account.

13. Wages paid for the installation of new machinery debited to wages account.

What kind of error is this?

A. Omission B. Commission C. Principle D. Compensating

14. A revenue expenditure was treated as capital expenditure. What is the effect of this error on the final

account items?

15. A business paid $224 to X. The entry in the cash book was correct. But it was credited as $ 242 in Xs

account.

What is the difference between the totals of the trial balance?

Assignment questions:-

Q1. Pass rectification entries for the following errors found from the books of a business:-

Q 2. The trial balance of a business was prepared on 31 st Dec 2003 and it did not agree. Later, thefollowing errors were found out:-

1. Drawings account had been overcast by $ 250.

2. Goods bought for the owners personal use $ 400 had been included in the purchase account.

3. Capital brought into the business additionally $ 5000 was debited to bank account and

credited to cash account.

4. Sales of goods on credit to J.John $ 400 had been debited to J.Jeanss account.

5. Insurance account was overcast by $ 150.

6. Carriage on purchases $ 450 paid by cash was completely omitted from the books.

1. Debit Jeena $ 38 and credit sales account $ 38

2. Debit sales account $ 38 and credit Jeenas account $ 38

3. Debit Jeena $ 10 and credit sales account $ 10

4. Debit sales account $ 10 and credit Jeena $ 10

1. M,Meenu debit $ 300 and cash account credit $ 300

2. Cash account debit $300 and M.Meenu credit $ 300

3. M.Meenu debit $ 600 and cash account credit $ 600

4. Cash account debit $ 600 and M.Meenu credit $ 600

1. Only net profit is overstated B. Only gross profit is overstated

2. No effect on gross profit or net profit

3. Gross profit & fixed assets are understated.

1. The gross profit is unaffected, net profit and fixed assets are overstated.

2. The net profit and fixed assets are understated

3. The net profit is unaffected and fixed assets are overstated

4. No effect on any offinal accounts items

1. $ 18 B. $ 36 C. $ 466 D. $ 484

1. sales day book had been under cast by $200

2. sale of goods to J.Johnson on credit for $ 500 had been debited to J.Jackson

3. Salaries account had been overcast by $ 300.

4. Purchase of goods by cash recorded in the cash account only $ 400.

5. Goods returned to Manu $ 150 debited to returns outwards account and credited to Manus account.

6. Repairs to motor car $ 400 debited to motor car account.

7. Returns outwards account had been overcast by $ 150.

8. A cheque received from Mathew $ 500 had been entered in the cash book only.

9. A payment made by cash $100 to Sunil was omitted from the books of the business.

10. Sales of machinery $ 1000 had been credited to sales account and debited to cash account.


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7. Discount received $ 200 had been debited to discount allowed account.

8. Interest on capital to the partner $ 100 had not been entered in the books of the business.

9. A cheque for $ 270 received from Albert recorded correctly in the cash book but recorded in Alberts

account as $ 207.

10. A debtor who owed $ 130 to the business was declared insolvent and the amount due from

him had to be written off. But this record was not made in the books.

Show the rectification entries for the above errors and prepare the suspense account showing clearly the

opening balance.

Q 3. On extracting a trial balance, a book keeper finds that it fails to agree. He enters the difference in

a suspense account in the credit side. After checking the accounts, he finds the following errors:-

posted to purchases account.

Pass rectification entries for the above errors and prepare the suspense account clearly showing

the opening balance.

Q 4. The trial balance drawn up from the books of a business on 31st Dec 2003 did not balance, the

debit total being $ 17698 and credit total $ 18210. A suspense account was opened and the difference

entered in that account. Subsequently, the following errors were discovered:-

as $ 208 in J.Jaavas account

been made in the books

Required to:-

a. Write up the journal entries to correct the above errors

b. Prepare a suspense account

Q 5. The trial balance prepared by a business did not agree. The difference was recorded in a

suspense account on the debit side. Later, the following errors were found out from the books:-

Pass rectification entries for the above errors and prepare the suspense account by writing the opening

balance.

Q 6. A trial balance was drawn up by L.Leena which did not agree. A suspense account was drawn to

show the balance in the credit side. The books were checked and the following errors and

omissions were discovered:-

as $ 410 in the motor van repairs account.

Required to:

1. Purchase of goods from Mithal $ 400 posted to his account as $ 40 and correctly

1. Purchase day book had been overcast by $ 75.

2. Discount of $ 68 allowed to T. Brown entered on the debit side of T.Browns account.

3. Total of sales returns book $ 200 entered to the credit side of returns inwards account

4. Debit balance of debtors account $ 98 incorrectly b/d as $ 89.

5. $ 140 received from Makin credited to Maliks account.

1. A cheque for $ 64 received from M.Minu had been entered in the books as $ 46

2. The purchase account had been undercast by $ 140

3. Goods sold to J.Jaava $ 280 had been enterd correctly in the sales account but entered

1. The owner had taken goods costing $ 300 for own use during the year. No entry had

1. Discount allowed $ 150 had been credited to the discount received account.

1. The drawings of cash from the business debited drawings account and credited to bank account $

550

2. Goods returned to Martin $ 120 had been credited to returns outwards account only

3. A credit note was received from Seema $ 160 was not entered in the books.

4. The provision for bad debts $ 250 had been debited to profit & loss account only

5. Commission received in cash recorded in the cash account only $ 170.

6. Goods returned by Simple $ 190 credited to both returns inwards account and Simples account.

1. The sales book was overcast by $ 100

2. Discount allowed $ 340 had been posted from the cash book to the debtors account, but no other

entries have been made.

3. The purchase of office equipment for $ 1200 has been debited to the sundry expenses account.

1. A payment of $ 140 for motor van repairs was entered correctly in the cash book but posted

1. L.Leena had taken goods worth $ 300 from stock for her personal use and these have been charged

to her account as drawings. No other entries have been recorded


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1 Write up the rectification entries required to correct the above errors.

2. Write up the suspense account after correction of the above errors.

Q 7. The trial balance prepared by a sole trader did not agree. Later the following errors and

omissions were found out from the books of the business:-

the trial balance.

Required to:

the opening balance

Q 8. The trial balance drawn up from the books of Joan on 31st December, 2003 did not balance, thedebit total being $ 125 664 and the credit total $ 126 000. A suspense account was opened and

the difference entered in that account. Subsequently the following errors were discovered.

a. A cheque for $ 32 received from J. Steve had been entered in the books as $ 23.

b. The purchases account had been undercast by $ 64.

c. Goods sold to N. Brown for $ 180 had been entered correctly in the sales account but entered

as $ 188 in N. Browns account

d. Joan had taken goods costing $ 100 for her own use during the year. No entry had been made

in the accounts.

e. Discount allowed $ 140 to Lames had been credited to discount received account.

Required to :

Q 9. The trial balance of S. Romsey, a wholesaler, drawn up on 31 st December, 2003 did not balance.The difference between the debit and credit totals was entered in a suspense account.

Subsequently the following errors were discovered.

A, Sales of $ 150 to B. Martin had been debited in error to D. Martin.

B. A cheque for $ 150 received from B.Tomy, a debtor, had been correctly posted in the cash

book but had been posted to Tomys account as $ 105

C. A debtor, G. Franks, who should have deducted 10% cash discount to which he was entitled, failed

to do so and paid an account of $ 200 in full. It was decided to credit the discount to

G. Franks account.

D. A bad debt of $80 had been written off during 2003 and although the correct entry had been

made in the debtors account, no other entry had been made.

E. Purchase returns to L. Lowry $ 300 had been credited to both the sales returns account and

L. Lowry account.

Required to:-

Q 10. Bakewell, a sole trader, prepared a trial balance. Unfortunately, the trial balance did not agree

and a Suspense account was opened.

On checking the books on 31st Dec 2003 the following errors were disclosed:-

Prepare journal entries to correct the above errors.

1. Purchase of goods from T Williams $ 190. posted to his account as $ 90

2. Purchase day book had been overcast by $ 25

3. Discount of $ 34 allowed to S. Burns, entered in the debit side of her account.

4. Debit balance on a debtors account of $ 94 incorrectly brought down as $ 49 and included in

1. Total of sales returns book $ 120 entered to credit of returns inwards account.

2. $ 20 received from C. Jenkins has been credited in error to C. Jenkinson.

1. Write up the rectification entries required to correct the above errors.

2. Write up the suspense account after correction of the above errors clearly showing

1. Write up the journal entries to correct the above errors.

2. Prepare a suspense account clearly showing the opening balance.

1. Write up the journal entries which are necessary to correct the above errors.

2. Prepare the suspense account after the correction of errors, clearly showing the opening balance.

1. The purchases day book had been over added by $ 300.

2. A sales ledger debit balance of $ 370 for A. Jones had been omitted from the sales ledger.

3. Goods $ 160 returned by N.Nion had been entered in the returns inwards account but no entry had

been made in N.Nions account.

4. Discount allowed $ 320 had been incorrectly credited to the discount received account. No entry had

been made in the discount allowed account.


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Q11. On drawing up the trial balance, the book keeper found that the totals did not agree. A suspense

account was opened and the difference between the totals was entered on it. On checking the books, the

following errors were discovered:-

Required to:

Q12. On drawing the trail balance of a business the book keeper found that the totals did not agree. A

suspense account was opened and the difference between the total entered. On checking the

books, the following errors were discovered:-

his own use, was not recorded in the books.

$ 126.

Required to:

Q13. On drawing the trial balance, the book keeper found that the totals did not agree. A suspense

account was opened and the difference entered in it. On checking the books, the following errors were

discovered:-

Required to:-

Q 14. a. Explain with the help of an example the meaning of error of principle.

b. The trial balance of a company did not balance. The difference between the debit and credit

sides was entered in a suspense account. Subsequently, the following errors were discovered.

i. Sale of $ 2 750 to A .Allen had been debited in error to A.Alwins account.

ii. A cheque for $ 250 received from Saany, a debtor, had been correctly posted in the

cash book but had been posted to Saanys account as $ 205

Iii.A debt of $ 95 had been written off during the current year, debited to bad debts account but no entry

was made in the debtors account.

iv.Purchase returns to Lilly $ 350 had been credited both to the sales returns account and Lillys account.

v. The owner took stock to home from the business was not recorded in the books $ 750

Required:-

Q 15. Amber is the owner of a sole trading concern. He prepared the trial balance of his business at

31st December 2003, and it did not agree. The debit total being $ 28 750 and the credit total being

$ 29 250.The difference was recorded in a suspense account. Later, the following errors were discovered

from the books of the business:-

1. Purchases $ 600 from F. Frensham had been posted to S. Frenshams account.

2. No entry had been made for goods costing $ 800 taken by the proprietor for his own use.

3. Sales returns $ 60 had been entered in the debtors account only.

4. Repairs to premises $ 500 had been debited to the premises account. The correct credit entry had

been made.

5. Discount allowed $ 400 had been credited correctly to the debtors account but had been credited tothe discount received account in error.

1. Write up the journal entries to correct the above errors.

2. Prepare the suspense account, clearly showing the opening balance.

1. Goods for resale had been purchased by cheque for $ 615. The correct entry had been made in the

purchases account but the bank account had been credited with $ 651.

2. White, the owner of the business had taken goods costing $ 180 from the business for

1. Discount received $ 250 had been debited to discount allowed account.

2. Sale of goods for $ 150 had been omitted from the debtors account.3. Sales returns had not been posted to the sales returns account in the general ledger

1. Write up the rectification entries for the above errors.

2. Prepare a suspense account clearly showing the opening balance

1. No entry had been made for the goods taken by the owner for own use $ 2150

2. A debtor paid $ 2 400 by cheque in full settlement of his account of $ 2 500. Both accounts were

entered for $ 2 400 only.

3. Purchased a motor car from A. Allen for $ 5 600 by cheque was not entered in the books.

4. A cheque received for $ 3 950 from Neena was credited in Neenas account only.

5. Discount allowed 125 were credited in discount received account.

1. Pass rectification entries for the above errors

2. Prepare suspense account showing the difference in trial balance.

1. Write up the rectification entries for the above errors

2. Write up the suspense account, after the corrections have been made, showing clearly the opening

balance.


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After the correction of the above errors the two totals of the trial balance were equal and suspense

account was cancelled.

Required to prepare

Incoming search terms:

1. The purchase return account had been over cast by $ 180

2. Discount allowed $ 200 had been credited to discount received account in error

3. An invoice of $ 600 for goods purchased on credit from Ancy was received before 31st December

2003 but it was not recorded in the accounts of the business.

4. Bank charges of $ 40 were recorded in the bank statement but this entry did not appear in the books

of the business.

5. Goods taken by Amber $ 788 recorded in the drawings account with the correct amount, credit entry

was made with $ 708.

1. The necessary journal entries for correcting the above errors

2. The suspense account to show the correction of errors.

Rectification of errors

bookkeeping transposition

preparation of suspense account

purchase book is overcast

rectification of accounting errors

rectification of errors in accounting

rectification of errors in cpt undercasting

rectification of errors of omission

rectifying journal entries

reversing wrong credit accounting error

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Documents

Rectification of Errors - Principles of Accounting