RECTIFICATION OF ERRORS
The term 'error' refers to unintentional mistakes in
financial information, e.g. mathematical or clerical mistakes, oversight or
misinterpretation of facts,
or unintentional misapplication of accounting policies.
While recording transactions
and events various errors may be committed unintentionally. When a journal
entry contains an error, the entry can be erased or crossed out and
corrected—if the error is discovered
immediately. However, if the errors are detected after posting to ledger
accounts, the correcting entries are made. The correcting entry is recorded in
journal and posted to the general ledger exactly as regular entries are.
(i) A repair expenses was erroneously debited
to Plant and machinery on November 25. The error is discovered on December 31:
Corrective Entry: 31st Dec. Repair Expenses A/c ———— Dr.
Plant and Machinery A/c
The corrective entry shows a credit to plant and
machinery to cancel of offset the erroneous debit to plant and machinery.
(ii) A collection on account was erroneously credited to
sales on Jan.1 The error is discovered on Mach 26.
March 26 Sales Account Dr.
sundry Debtors A/c
The debit to Sales in the correcting entry offset
the incorrect credit to sales in the erroneous entry. The Credit to Account Receivable in
the correcting entry places the collected amount where it belongs.
Some errors are counter balanced:-- Accounting errors that are undetected can affect
a variety of items, including revenues and expenses for a given period. Some errors are counterbalanced by offsetting errors in the
ordinary accounting process in the "next period. Such errors misstate net
income in both periods, but by the end of the second period the errors are
counterbalance, and they affect the balance sheet of only first period, not
the second period.
Example: A payment of Rs. 10,000 in March
2003 for Rent for the month April 2003. Instead of recording it as prepaid
rent, the payment was recorded as Rent Expenses.
The effect of this recording
error would be to:
rent expenses for the year 2002-2003 and understate year-end assets by Rs.
10,000 for the first year end and
rent expense for the second year.
Errors that are
not counterbalanced in the ordinary book-keeping process
will keep subsequent balance sheets in error until
specific correcting entries are made.
A Trial Balance is very
good way of giving a clear indication of some mistakes that may be there. This
will be shown immediately, if the
totals of the two columns of the trial balance differ. Thus, trial balance is essential
to ensure that mistakes do not remain unearthed. However, the agreement of
trial balance do not show conclusively that no mistakes have remain undetected.
Some errors will not be disclosed by the trial balance whereas some will be. An
agreed trial balance, therefore, is only a
reasonable proof of arithmetic accuracy of books
DIFFERENCE IN TRIAL BALANCE: ERRORS
Apart from error in
totalling the two columns of trial balance, the following mistakes will be
shown up by the trial balance , because then the trial balance will not agree:
(a) Mistake in transferring the
balance of an account to Trial balance.
(b) Omitting to write the balance of an
account in the trial balance.
Mistake in balancing
(d) Making an entry on the wrong side.
mistake in the casting of subsidiary books.
Omitting to post the discount columns of the cash book.
spite of the agreement of the trial balance, the following types of error will
not be disclosed because they do not upset the equation: DEBIT = CREDIT.
Omitting to record a
transaction entirely in subsidiary books.
A wrong entry in the
an entry on the correct side but in the wrong account head
- An error of principle- where by an assets is transferred as an
expense or liability is treated as an income.
Ø CLASSIFICATION OF ERRORS( most. imp)
Error of omission
A transaction entirely omitted to
record in original books or partially omitted while posting.
Error of commission
Wrong posting either of amount or on
the wrong side, or in the wrong account.
Error of principle
Wrong classification of expenditure or
One error compensated by the error
i.e. an error which cancels themselves out.
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