Rectification of Errors Class 11 Notes

When an error is rectified by passing a journal entry, one account being debited and the other account being credited, it is called a rectifying entry. Here are the rectification of errors in class 11 notes.

Rectification of errors depends upon the time of their detection and the type of the error. It may be discussed as follows:

• Rectification of errors before the preparation of trial balance.
• Rectification of errors after the preparation of trial balance but before the preparation of final accounts
• Rectification of errors after the preparation of final accounts or in the next accounting year.

Rectification of Errors Before Preparation of Trial Balance

When errors are detected before the preparation of the trial balance, it should be assessed whether they are two-sided errors or one-sided errors.

From the rectification point of view, all errors can be classified into the following two categories:

• Errors which do not affect the trial balance or two-sided errors
• Errors that affect the trial balance or one-sided errors

Two-sided Errors

Errors that affect two accounts simultaneously are called two-sided errors. Such errors may include the following types of errors:

1. Omission to pass an entry in the books of original records
2. Wrong recording of a transaction in the books of original records
3. Posting to the wrong account
4. Error of principle

All these errors are rectified by passing a journal entry, one account being debited and the other account being credited.

The following rules should be observed while passing entries to rectify the two-sided errors:

• The account showing an excess debit should be credited in the rectifying entry
• The account showing a short debit should be debited in the rectifying entry
• The account showing an excess credit should be debited in the rectifying entry
• The account showing a short credit should be credited in the rectifying entry

These four rules as enumerated above can be explained by the examples given below:

1) When an account has wrongly been debited in place of another account:

Example: Machinery purchased for Rs. 5,000 has been debited to Purchases A/c.

Solution: This error affects the two accounts in the following manner:

Machinery A/c

Purchases A/c

Rectifying Entry:

Machinery A/c Dr. 5,000
To Purchases A/c 5,000
(For purchase of machinery wrongly debited to purchase A/c)

Second Method:

• The correct entry which should have been passed earlier:
  Machinery A/c Dr. 5,000
  To Cash A/c 5,000
• Wrong entry which has been passed:
  Purchases A/c Dr. 5,000
  To Cash A/c 5,000
• By comparing the correct entry and the wrong entry it will be ascertained that machinery A/c should be debited and the purchases A/c should be credited, as it has been wrongly debited earlier.
  Rectifying entry that must be passed now:
  Machinery A/c Dr. 5,000
  To Purchases A/c 5,000

2) When an account has wrongly been credited in place of another account:

Example: Rs. 3,000 being the sale proceeds of old furniture has been credited to Sales A/c.

Solution: This error affects the two accounts in the following manner:

Furniture A/c

Sales A/c

Rectifying Entry:

Sales A/c Dr. 3,000
To Furniture A/c 3,000
(Sale of old furniture wrongly credited to Sales A/c)

Second Method:

• The correct entry which should have been passed earlier:
  Cash A/c Dr. 3,000
  To Furniture A/c 3,000
• Wrong entry which has been passed:
  Cash A/c Dr. 3,000
  To Sales A/c 3,000
• By comparing the correct entry and the wrong entry it will be ascertained that Sales A/c should be debited because it has been wrongly credited earlier and Furniture A/c should be credited.
  Rectifying entry that must be passed now:
  Sales A/c Dr. 3,000
  To Furniture A/c 3,000

3) When there is a short debit in one account and a short credit in another account:

Example: Goods purchased from Sanjay for Rs. 2,000 were entered in the Purchase Book as Rs. 200 only.

Solution: Effect of Error:

Purchases A/c

Rectifying Entry:

Purchases A/c Dr. 1,800
To Sanjay 1,800
(Goods purchased from Sanjay for Rs. 2,000 were wrongly entered as Rs. 200)

Second Method:

• The correct entry which should have been passed earlier:
  Purchases A/c Dr. 2,000
  To Sanjay 2,000
• The entry which has been passed from the wrong amount:
  Purchases A/c Dr. 200
  To Sanjay 200
• Rectifying entry that must be passed now:
  Purchases A/c Dr. 1,800
  To Sanjay 1,800

4) When there is an excess debit in one account and an excess credit in another account:

Example: Goods sold to Mohan for Rs. 380 on credit were recorded in the Sales Book as Rs. 830.

Solution: Effect of Error:

Mohan’s A/c

Sales A/c

Rectifying Entry:

Sales A/c Dr. 450
To Mohan 450
(Sales to Mohan for Rs. 380 wrongly entered as Rs. 830)

Second Method:

• The correct entry which should have been passed earlier:
  Mohan Dr. 380
  To Sales A/c 380
• The entry which has been passed from the wrong amount:
  Mohan Dr. 830
  To Sales A/c 830
• Rectifying entry that must be passed now:
  Sales A/c Dr. 450
  To Mohan 450

Single Entry System Class 11 Notes

One-Sided Errors

These errors affect only one account. If, for example, a sum of Rs. 2,500 given to Ajay is correctly recorded in the cash book but omitted to be posted to the debit of Ajay, the error will be termed as a one-sided error because the error exists in the account of Ajay only.

Such type of errors occur in the following cases:

1. When a subsidiary book is undercast (totaled less) or overcast (totaled in excess).
2. When the posting to an account is altogether omitted.
3. When the posting is made on the wrong side of an account.
4. When the posting of the wrong amount is done.

Rectification of such errors depends on the stage at which the errors are located:

a) When the errors are located and rectified before the closing of accounts (i.e., before preparing the trial balance and before the opening of suspense A/c):

Rectification of errors at this stage does not require rectification entries. Only the amount is written on the debit or credit side of the account which is affected by the error.

b) When the errors are located and rectified after the closing of accounts (i.e. after preparing the trial balance and after opening of suspense A/c):

In such a case, two-sided errors will be rectified in the same manner (as explained earlier) by passing journal entries but one-sided errors will be rectified in the following manner.

When one-sided errors are located after the preparation of the trial balance, rectifications are carried out by passing journal entries.

As only one account is to be debited or credited for the rectification of one-sided errors, a suspense account is used to complete the double entry.

Suspense A/c

When a trial balance does not tally, the difference is put to a newly opened account named ‘Suspense Account’ and the trial balance is thus made to tally.

In case, the debit side of the trial balance exceeds the credit side, the difference is put on the credit side of the ‘Suspense Account’.

Likewise, if the credit side of the trial balance exceeds the debit side, the difference is put on the debit side of the ‘Suspense Account’.

Disposal of Suspense Account

The suspense account is an imaginary account used as a temporary measure only to reconcile a trial balance.

Later, as and when the errors affecting the suspense account are located, rectification entries are passed with the help of the suspense account.

The following points should be noted while passing rectification entries with the help of the suspense account:

• Suspense account is used to rectify only those errors which affect the trial balance.
• a) If the account that is to be rectified is debited in the rectifying entry, the suspense account will be credited to complete the double entry.
  b) If the account that is to be rectified is credited in the rectifying entry, the suspense account will be debited to complete the double entry.

Guiding Principles of Rectification of Errors

1. If an error is related to posting from the cash book: The error will be related to the individual account in which the posting was to be made not to the cash/bank account.
2. If an error relates to posting from other subsidiary books: The error will be related to the individual personal account only and not the Purchase A/c, Sales A/c, etc. in which the total of a particular subsidiary book is posted.
   Example: Goods purchased from Y for Rs. 50,000 posted as Rs. 5,000. It means that Y’s A/c was not affected by Rs. 5,000 and Purchase A/c was credited.
3. If an error relates to the omission of posting a transaction recorded through the Journal: Assume that the transaction has not been posted to any of the accounts.
   Example: Machinery purchased on credit from X for Rs. 20,000 was not posted. It means that the posting has not been done to any of the accounts i.e. Machinery A/c and X’s A/c.
4. If an error is related to casting (totaling) of subsidiary books: It will affect only that account where the total of the subsidiary book is posted and will not affect the individual personal account.
   Example: Sales Book was overcast by Rs. 10,000. It means that there is excess credit of Rs. 10,000 in the Sales Account.
5. If an error is committed in the books of the original entry, assume that all postings have been done accordingly.
   Example: Purchased goods on credit from X for Rs. 20,000 recorded as Rs. 2,000. It means that Purchase A/c has been debited and X’s A/c has been credited with Rs. 2,000.
6. If an error is at the posting stage, assume that recording in the subsidiary book has been done correctly.
   Example: Purchased goods on credit from X for Rs. 20,000 posted as Rs. 2,000. It means that the credit purchase is correctly recorded in the purchase Book but while posting X’s A/c has been credited with Rs. 2,000.
7. If an error relates to posting to the wrong account (without mentioning the side and amount of posting) then assume that posting has been done on the correct side with the correct amount.
8. If an error relates to posting with the wrong amount (without mentioning the side of the posting and account) then assume that posting has been done to the correct account and on the correct side.
9. If an error relates to posting on the wrong side (without mentioning the amount and account) then assume that posting has been done to the correct account with the correct amount.
10. Unless stated otherwise, errors are presumed to be rectified before preparing financial statements.