Kinshuk Institute

Chapter – 3: Rectification of Errors

Meaning of an Error:
If in books of account any one or more of the above mentioned basic elements/features of correct
accounting is not followed, then we will say an error/mistake has been committed. Thus an error
means not adhering (following) 100%, the accounting procedure & norms.

Classification of Errors
One sided error Double Sided Error
(When ultimately double entry is not (When double entry gets completed even though
completed in the accounts) there are errors.)
 This does affect the agreement of Trial  This does not affect the agreement of Trial balance.
balance That means inspire of such errors trial balance can
 Difference of Trial balance is put in to steel agree.
Suspense a/c  No difference arises because of such errors.
 Hence in rectification of such errors one  Debit & Credit will both go to regular accounts
effect (debit or credit) will go to which were affected; suspense account will not be
Suspense a/c involved in such rectification entry.
 When all this errors are rectified  No relationship with suspense account hence even
Suspense account will get closed. when suspense a/c is nil, such errors may exist.

Meaning of Rectification: Rectification means bringing to the correct position, whatever wrong has
been done.

Necessity of Rectification: The errors should be rectified otherwise the final accounts i.e. Profit & Loss
A/c. and Balance Sheet will not show correct i.e True & Fair position & such erroneous information can
mislead the decision maker.

Time of Rectification: The errors should be rectified in the same year’s books of accounts. But if the
books of accounts are already closed i.e. financial statements have been prepared & used then it will
have to be rectified in the next financial year’s books of accounts.

Rectification in the same year can be:

1) Before preparation of Trial Balance i.e. without opening a Suspense a/c. or
2) After preparation of Trial Balance i.e. after opening a Suspense a/c.

Suspense Account:
 When trial balance does not tally, the difference is put to an account named as Suspense a/c.
Difference is:
Debited (if debit side of trial balance is short) or
Credited (if credit side of trial balance is short) to Suspense a/c
 Thus with the help of suspense a/c trial balance is artificially tallied.
 While passing rectification entry for one sided errors, the one effect Dr. or Cr. will go in to the
a/c in which mistake is committed & the other effect will be given to Suspense a/c.
 When all such one sided errors are rectified the Suspense a/c will become Nil.
 While rectifying double sided errors, suspense account will not get affected.

Whenever required by the question, amount & nature of difference in Trial balance can be
ascertained by preparing a Suspense a/c. The balancing figure of suspense account after all
rectification would be the difference of trial balance.

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Rectification in the next year:- When the errors could not be traced & accounts need be finalized,
then Annual financial statements are prepared & books of account is closed by putting difference if
any to suspense a/c. Later on the search for error may continue & if errors as & when identified will be
rectified in Subsequent year’s books of Accounts.
 If errors are located after finalizing the accounts then it should be rectified in the next years
accounts.
 The difference of Trial balance will also get transferred to next years books under the name
Suspense a/c.
 This will involve preparation of Profit & Loss Adjustment account.

Profit & Loss Adjustment account:

 The rectification entry will be same as passed in case of rectification in same year except that
wherever any Income or Expenses a/c. is involved, the Debit/Credit will be made in P&L
adjustment a/c. and not in the Income or Expenses a/c.
 Otherwise this year’s profit will be affected by the errors of last year.
 The balance in P&L adjustment a/c. will be transferred to capital a/c.
 This is the amount of error in last year’s P & L a/c. If P&L adjustment a/c shows:
Credit balance that means last year less profit was shown by P&L a/c because of errors
Debit balance that means last year more profit was shown by P&L a/c because of errors
 As per AS-5 (Accounting Standard-5) this is prior period adjustment & should be shown in P&L
a/c may be after ascertaining current year’s profit, hence P&L Adj. Can be transferred to P&L
a/c.

Classification of Rectification of Errors

Rectification in Same year’s Rectification in the subsequent (next) years books of

book’s of accounts (This is the accounts (It is a forced situation, when due to time
natural 1st preference) constraint all errors could not be located & rectified,
before finalizing annual financial accounts).
Rectification in Same year’s
book’s of accounts (This is the The mistake in nominal accounts will be rectified by
natural 1st preference) debiting or crediting the profit & loss Adjustment a/c so
that the current year’s Profit & Loss is not affected
(changed) due to errors committed in last year.

Rectification before preparing Rectification after preparing It will be always

Trial balance i.e. without trial balance i.e. with with Suspense a/c
preparing suspense a/c Suspense account

While rectifying one Double entry will be formed while rectifying

sided errors double all errors be one sided (one effect will be on
entry will not be formed suspense a/c) or double sided.

Classification of Errors (types of errors) and its effect on agreement of Trial Balance
1. Errors of Principle:
 That means there is error in applying some accounting Principle,
 Such errors will not affect the agreement of trial balance i.e. these are double sided error.
Ex. Treating a revenue expense as capital expenditure or vice versa or the the recording of sale of a
fixed asset as ordinary sale.

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2. Clerical Errors:
 These are the errors committed in applying the accounting procedure.
 Such errors may or may not affect the agreement of trial balance.
These can be further classified as follows.
a) Errors of Omission:
(i) Omitting an entry completely from the subsidiary book. Full omission hence Trial Balance will
agree. Ex.: Sale of Rs. 5,000 to A on 30.3.16 is not recorded.
(ii) Omitting to post the ledger account from the subsidiary books. Partial omission hence Trial
Balance will not agree.
Ex.: A sale entry of Rs.10,000 not posted to A’s a/c..
b) Errors of Commission:
(i) Writing wrong amount in the Subsidiary book. Trial Balance will agree.
Ex. : A purchase of Rs.5,000/- from ‘X’ is entered in purchase book as Rs. 500/-
(ii) Posting the wrong account in the ledger. Trial Balance will agree.
Ex.: From Sales book A’s account is debited by Rs. 8000 instead of B’s account.
(iii) Wrong casting of subsidiary books.
Ex.: Total of Bills Receivable book is taken as 1,05,000/- instead of 1,00,500/-
(iv) Posting the wrong amount in the ledger.
Ex.: From Sales Return book A’s account is Credited by Rs.8,000 instead of Rs.8,800/-
(v) Posting an amount on the wrong side of an account.
Ex.: From Sales Book L’s account is credited
(vi) Wrong balancing of an account.
Ex.: Balance of Furniture account is taken as Rs.7,000/- instead of Rs.3,000/-
Note. In case of errors described in (iii) to (vi) above, Trial Balance will not agree.
c) Compensating Errors:
Two or more mistakes which compensate the effect of each other on trial balance & hence Trial
Balance will agree.
Ex.: Excess debit Rs.1,000 to Furniture a/c & Excess credit of Rs.1,000 to Sales a/c.

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Class work
P-1: A book-keeper finds that the trial balance is out. He puts the difference to a newly opened
suspense account. Subsequently, the following errors were located:
(i) The purchases book for January, 2016 has been cast Rs. 1,000 short.
(ii) A credit purchase for Rs. 6,710 had been posted to the debit of the creditor’s account as Rs.
6,170; Rajan being the concerned creditor.
(iii) A credit sale for Rs. 6,000 has been passed through the purchases book.
(iv) Rs. 4,000 paid to B was debited to A’s Account.
(v) Rs. 5,400 received from Mr. A was posted to the debit of his account.
(vi) Rs. 1,000 being purchases returns were posted to the debit of purchases Account.
(vii) Discount received Rs. 2,000 was posted to the debit of Discount Account.
(viii) Rs. 2,740 paid for Repairs to Motor Car was debited to Motor car Account as Rs. 1,740.
(ix) Wages paid to workers for installing a machinery, Rs. 750 were debited to wages account.
(x) A dishonoured bill receivable for Rs. 5,000 returned by the bank with whom it had been
discounted was credited to bank and debited to bills receivable account.
(xi) A sum of Rs. 1,000 drawn by the proprietor for his personal use was debited to travelling expenses
account.
Give Journal Entries to rectify the above error and ascertain the amount transferred to Suspense
Account on 31st March, 2016, assuming that the Suspense Account is balanced after the above
corrections.

P-2: The following mistakes were located in the books of a concern after its books were closed and a
Suspense Account was opened in order to get the Trial Balance agreed:
(i) Sales Day Book was overcast by Rs. 1,000.
(ii) A sale of Rs. 5,000 to X was wrongly debited to the Account of Y.
(iii) General expense Rs. 180 was posted in the General Ledger as Rs. 810.
(iv) A Bill Receivable for Rs. 1,550 was passed through Bills Payable Book. The Bill was given by P.
(v) Legal Expenses Rs. 1,190 paid to Mrs. Neetu was debited to her personal account.
(vi) Cash received from Ram was debited to Shyam Rs. 1,500.
(vii) While carrying forward the total of one page of the Purchases Book to the next, the amount of
Rs. 1,235 was written as Rs. 1,325.
Find out the nature and amount of the Suspense Account and pass entries (including narration) for the
rectification of the above errors in the subsequent year’s books.

P-3: The trial balance of Hari for the year ended on 31.03.2016 did not agree. He put the difference in a
newly opened suspense account and finalized the accounts. In the next year, he located the
following errors:
(i) Rs.4,000 paid for freight on machinery purchased on Oct.1, 2015 was debited to Freight
Account. Depreciation on Machinery is charged @ 20% p.a.
(ii) Sundry items of furniture having book value Rs.30,000 on 1.4.2015, was sold on 30.11.2015 for Rs.
26,000 had been entered in the sales book. Depreciation on furniture is charged @ 15% p.a.
(iii) An item of prepaid rent Rs.5,000 was omitted to be brought forward.
(iv) The closing stock sheets as on 31.03.2016 were found to be totaled Rs.10,000 in excess.
Pass journal entries to rectify the above errors in next year’s books.

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Home Work
H.W.–1: Correct the following errors unearthed before preparation of the Trial Balance.
(a) A welding machine purchased for Rs. 5600 from the Oxygen Co. Ltd., has been entered in the
purchase Day Book.
(b) The total of the Returns outwards Book is Rs. 100 short.
(c) A sale of Rs. 175 to M/s Gupta & Mukherjee has been entered in the sales Book as Rs. 157.
(d) A purchase of Rs.215 from M/s Guha& Roy had been posted to the debit of their account.
(e) Discount allowed to D. Majhail, Rs.15, had not been entered in the Cash Book, but the full amount
(including discount) has been credited to D. Majhail's account.
(f) Licence fee for proprietor's gun, Rs. 30, had been debited to General Expenses Account.
(g) A sale of Rs.200 for old furniture has been has been passed through the sales book.

Solution: Working Note:

Effect already given in A/c Correct effect
a. Purchase a/c Dr. 5600 Machinery a/c Dr. 5600
To Oxygen a/c 5600 To Oxygen Co. a/c 5600
b. Party a/c Dr. 10100 Party a/c Dr. 10100
To Purchase return a/c 10000 To purchase return a/c 10100
c. M/s Gupta & Mukherjee a/c Dr. 157 M/s Gupta & Mukherjee a/c Dr. 175
To sales a/c 157 To sales a/c 175
d. M/s Guha & Roy a/c Dr. 215 Purchase a/c Dr. 215
Purchase a/c Dr. 215 To M/s Guha & Roy a/c 215
e. Cash a/c Dr. 215 Cash a/c Dr. 215
To Mahjail a/c 230 Discount a/c Dr. 15
To Mahjail a/c 230
f. General expense a/c Dr. 30 Drawing a/c Dr. 30
To Cash a/c 30 To cash a/c 30
g. Party a/c Dr. 200 Party a/c Dr. 200
To sales a/c 200 To old furniture a/c 200

Answer: Rectification Entry

Without Suspense a/c With Suspense a/c
a. Machinery a/c Dr. 5,600 Machinery a/c Dr. 5,600
To purchase a/c 5,600 To Purchase a/c 5,600
b. Suspense a/c Dr. 100
To Purchase return a/c 100 To purchase return a/c 100
c. M/s Gupta &Mukh. a/c Dr. 18 Gupta Mukh. a/c Dr. 18
To Sales a/c 18 To Sales a/c 18
d. Suspense a/c Dr. 430
To M/s Guha& Roy a/c 430 To M/s Guha& Roy a/c 430
e. Discount a/c Dr. 15 Discount a/c Dr. 15
To Suspense a/c 15
f. Drawings a/c Dr. 30 Drawing a/c Dr. 30
To general exp. a/c 30 To General exp. a/c 30
g. Sales a/c Dr. 200 Sales a/c Dr. 200
To old furniture a/c 200 To Old Furniture a/c 200

Suspense Account
To Purchase Return a/c 100 Difference in Trial bal. (balancing figure) 515
To Guha& Roy a/c 430 By Discount a/c 15
530 530

Note: From suspense a/c, we can conclude that the Trial balance Credit side was short by Rs. 515/-

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H.W.-2: Ganesh drew a Trial Balance of his operations for the year ended 31.03.2016. There was a
difference in the Trial Balance which he closed with a Suspense Account. On a scrutiny by the
Auditors, the following errors were found:
(i) Purchases day book for the month of April, was under cast by Rs. 1000
(ii) Sales day book of October, was overcast by Rs. 10,000
(iii) Furniture purchased for Rs. 8,100 was entered in the Furniture Account as Rs. 810.
(iv) A bill for Rs. 10,000 drawn by Ganesh was not entered in the Bills Receivable Book.
(v) Machinery purchased for Rs. 10,000 was entered in the purchased day book.
Pass necessary Journal Entries to rectify the same and ascertain the difference in the Trial Balance that
was shown under the Suspense Account in respect of the above items.
Solution:
Working Notes Answer
Effect already given in a/c Correct effect Rectification entry
i. Purchase a/c Dr. 4,000 Purchase a/c Dr. 5,000 Purchase a/c Dr. 1,000
To Party a/c 5,000 To party a/c 5,000 To suspense a/c 1,000
ii Party a/c Dr. 30,000 Party a/c Dr. 30,000 Sales a/c Dr. 10,000
To sales a/c 40,000 To sales a/c 30,000 To suspense a/c 10,000
iii Furniture a/c Dr. 810 Furniture a/c Dr. 8,100 Furniture a/c Dr. 7,290
To cash a/c 8,100 To cash a/c 8,100 To suspense a/c 7,290
iv No Entry B/R a/c Dr. 10,000 B/R a/c Dr. 10,000
To party a/c 10,000 To party a/c 10,000
v Purchase a/c Dr. 10,000 Machinery a/c Dr. 10,000 Machinery a/c Dr. 10,000
To party a/c 10,000 To party a/c 10,000 To Purchase a/c 10,000

Suspense Account
Difference in Trial balance (Balancing figure) 18,290 By sales a/c 10,000
By purchase a/c 1000
By Furniture a/c 7290
18,290 18,290

Comment:
 Debit side of Trial balance was short by Rs. 18290. Trial balance was temporarily tallied by
putting that diff. to debit of suspense a/c. Now after rectification the suspense a/c has
become nil that means trial balance is now tallied.
 v) is Error of Principle, vi) is Errors of Full omission and i), ii) & iii) are Error of commission.

H.W.-3: A book-keeper while preparing his trial balance finds that the debit exceeds by Rs.7,250.
Being required to prepare the final account for the year 2015, he places the difference to a Suspense
Account. In the next year i.e. 2016 the following mistakes were discovered:
(a) A sale of Rs.4,000 has been passed through the Purchase Day-book. The entry in customer's
account has been correctly recorded.
(b) Goods worth Rs.2,500 taken away by the proprietor for his use has been debited to Repairs
Account.
(c) A Bill receivable for Rs.1,300 received from Krishna has been dishonoured on maturity but no entry
passed.
(d) Salary Rs.650 paid to a clerk has been debited to his Personal Account.
(e) A Purchase of Rs.750 from Raghubir has been debited to his account. Purchases Account has
been correctly debited.
(f) A sum of Rs.2,250 written off as depreciation on furniture has not been debited to Depreciation
Account.
Draft the Journal entries for rectifying the above mistakes and prepare Suspense Account.

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Solution:
Rectification in Subsequent Year
Working Note Answer
Effect already given in a/c in 2005 Correct effect Rectification entry in 2016
Purchase a/c Dr. 4000 Party a/c Dr. 4000 Suspense a/c Dr. 8,000
Party a/c Dr. 4000 To sales a/c 4000 To (sales) P&L Adj. a/c 4,000
To(purchase a/c)P&L Adj. 4,000
a/c
Repairs a/c Dr. 2500 Drawings a/c Dr. 2500 Drawings a/c Dr. 2500
To goods used 2500 To Goods Used a/c 2500 To (repairs) a/c P&L Adj. a/c 2500
No Entry Krisha a/c Dr. 1300 Krishna a/c Dr. 1300
To B/R a/c 1300 To B/R a/c 1300
Clerk a/c Dr. 650 Salary a/c Dr. 650 P&L Adj. (Salary) a/c Dr. 650
To cash a/c 650 To cash a/c 650 To clerk a/c 650
Purchase a/c Dr. 750 Purchase a/c Dr. 750 Suspense a/c Dr. 1500
Raghu a/c Dr. 750 To Raghu a/c 750 To Raghu a/c 1500
Depreciation a/c Dr. 2250 P& L adjs. A/c Dr. 2250
To furniture a/c 2250 To furniture a/c 2250 To suspense a/c 2250
Balance of P&L Adj. a/c indicating that last year’s profit was shown P&L Adjs. A/c Dr. 7600 7600
less, transferred to capital a/c. To capital a/c
Suspense Account
By Balance B/f (Balancing figure) 7250
To P&L Adj. a/c 8000 By P&L Adj. a/c 2250
To Raghu a/c 1500
9500 9500

P&L Adjustment Account

To clerk a/c 650 By suspense a/c 8000
To suspense a/c 2250 By Drawing a/c 2500
To capital a/c (cr. Bal. transferred) 7600
10500 10500

Comment:
 Balance in suspense a/c indicates that in last year’s Trial balance, Credit side was short by Rs. 7250
 As the rectification is being carried out in the next year’s books of account, the Profit & Loss
adjustment account is debited/ credited in place of income & expenses account.
 The credit balance of Rs.7,600 in Profit & Loss adjustment account indicates that in last year less
profit was shown.
 b) is Error of Principle, c) is Error of Full omission and a) d) e) & f) are Error of commission.

H.W.-4: The books of accounts of B. Quick for the year ending 31st March, 2016 were closed with a
difference in books carried forward. The following errors were detected subsequently:
(a) Goods Rs. 125 returned to Mita Bros. were recorded in the Returns Inward Book as Rs. 251 and from
there it was posted to the debit of Mita Bros. Account.
(b) A credit sale of Rs. 760 was wrongly posted as Rs. 670 to the customer account in the Sales ledger.
(c) Closing Stock was overstated by Rs. 5,000 being casting error in the schedule of inventory.
(d) Paid acceptance to Bala Ram for Rs. 7,600 was posted to the debit of Sita Ram as Rs. 6,700.
(e) Goods purchased from A & Co. Rs. 3,250 entered in the Sales Day Book for Rs. 3,520.
(f) Rs. 1,500 being the total of the discount column on the credit side of the Cash Book was not
posted. Pass rectification entries in the next year.

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Solution
Rectification in Subsequent year
Particular Dr. Cr.
(a) Suspense a/c Dr. (251 + 251) 502
To P&L Adjs. A/c (125 + 251) 376
To Mita Brothers a/c (251-125) 126
(Being rectification of wrong debit to sales Return 251/- omission of credit to
Purchase return Rs. 125 & excess debit to Mita Brothers, now rectified)
(b) Customer a/c Dr. 90
To Suspense a/c 90
(being short debit to customer a/c, now rectified)
(c) P&L Adj. A/c Dr. 5000
To opening stock a/c 5000
(Being excess entry of closing stock last year, now rectified. Last years Closing
stock a/c is Current years opening stock a/c)
(d) Bills payable a/c Dr. 7600
To Sita Ram a/c 6700
To Suspense a/c 900
(Being debit to Sita Ram instead of bills payable a/c that too with short
amount, now rectified)
(e) P &L Adj. A/c Dr. (3520 +3250) 6770
To A &Co. a/c 6770
(Being a purchase wrongly entered as sales is now rectified)
(f) Suspense a/c Dr. 1500
To P&L Adj. A/c 1500
(Being omission of posting to Discount received a/c, rectified)

Suspense Account
By Balance B/f (diff. In last year’s trial 1012
bal.) (Balancing figure)
To Sundry a/c 502 By Customer a/c 90
To P&L Adj. A/c 1500 By Sundry a/c 900
2002 2002

P&L Adjustment Account

To Opening stock a/c 5000 By Suspense a/c 376
To A &Co. a/c 6770 By Suspense a/c 1500
By Capital a/c (Balance transferred) 9894
11770 11770

Comment:
 Balance in suspense a/c indicates that in last year’s Trial balance, Credit side was short by
Rs.1012
 The debit balance of Profit & Loss adjustment account indicates that in last year profit was
shown excess by Rs.9,894.
 f) is error of Partial omission, and a) to e) are Error of commission.

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