Chapter 5: RECTIFICATION OF ERRORS

Rectification of Errors
Whenever an error occurs, it should be rectified through proper rectification. Otherwise the books of accounts cannot
exhibit the true and correct view of the state of affairs of a business and its financial results. So, it is very important
that we identify and rectify all material errors in the books of accounts.
Types of Errors
Errors can be classified in four broad categories
a) Errors of Principle
- Error arising due to recording transactions ignoring principle relating to revenue and capital items distinction.
- This Error doesn’t affect the TB.
- Eg. Repairs of Asset Capitalized as Asset.
- Eg. Expenditure relating directly to acquire an asset, treated as expense.

b) Clerical Errors
Clerical errors can be further segregated into following errors
(i) Errors of Omission
Error due to omission to record a transaction partially or completely. Thus, this error is of 2 types:
Ø Error of Complete Omission
- Arises when a transaction is completely omitted from being recorded in the Books of Original Entry, or
even if recorded in the Books of Original Entry, not posted into ledgers completely.
- This Error doesn’t affect TB ie. Is not self revealing.
- Eg: A Journal Entry made or an Entry made to the Purchase Book, but not posted anywhere.
Ø Error of Partial Omission
- Arises when a transaction is partially omitted or partially recorded / posted.
- This Error affects TB ie. Is self revealing
Eg. Goods sold to Ram on credit, omitted to be posted to Ram`s A/c ledger.

(ii) Errors of commission

Error committed due to mistakes in:
ü Recording [Doesn’t affect TB; Eg. Sales of Rs. 5,000 recorded as Rs. 500 in Journal]
ü Posting [Affects TB; Eg. Purchase Book total Rs. 1000 posted Rs. 100 in Ledger]
ü Casting [Affects TB; Eg. Purchase Book short totaled by Rs. 500 / excess totaled by Rs. 300]
ü Carry forward [Affects TB since only 1 ledger is affected]
ü Balancing etc. [Affects TB since a ledger isn`t balanced properly]

(iii) Compensating Errors

- More than 1 error committed such that they nullify the effects of each other.
- It relates to group of errors that dilute each other’s possibility of being revealed in the TB.
- Eg. While posting Rs. 500 into Debit of Purchase A/c ledger, Rs. 50 was posted by error. At the same time, while
posting Rs. 500 into Credit of Sales A/c ledger, Rs. 50 was posted by another error. Error in posting purchase,
increase profit by Rs. 450 while error in posting sales reduce profit by Rs. 450. Since, both have equal impact on
Debit and Credit sides, the Trial Balance tallies.

Clerical Errors: Error of Commission, Omission and Compensating Error are together called Clerical Errors.

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 Chapter 5: RECTIFICATION OF ERRORS

Errors

Affecting TB Not Affecting TB

Partial Omission Complete Omission

Principle
Commission
Compensatory

Commission

Rectification of Errors
Rectification of errors is simple technique to correct all types of accounting errors for showing correct profit and
financial position in financial statements.
Rectifying error depends largely on when the error is detected. Errors can be detected at any one of the following
stages:

Stage 1: Before preparation of trial balance

Question 1: The following errors were found in the book of Ram Prasad & Sons. Give the necessary entries to correct
them.
(a) Rs. 500 paid for furniture purchased has been charged to ordinary Purchases Account.
(b) Repairs made were debited to Building Account for Rs. 50.
(c) An amount of Rs. 100 withdrawn by the proprietor for his personal use has been debited to Trade Expenses
Account.
(d) Rs. 100 paid for rent debited to Landlord’s Account.
(e) Salary Rs. 125 paid to a clerk due to him has been debited to his personal account.
(f) Rs. 100 received from Shah & Co. has been wrongly entered as from Shaw & Co.
(g) Rs. 700 paid in cash for a typewriter was charged to Office Expenses Account.

Question 2: Give journal entries to rectify the following:

(a) A purchase of goods from Ram amounting to Rs. 150 has been wrongly entered through the Sales Book.
(b) A Credit sale of goods amounting Rs. 120 to Ramesh has been wrongly passed through the Purchase Book.
(c) On 31st Ashadh, 2076 goods of the value of Rs. 300 were returned by Hari Saran and were taken inventory on the
same date but no entry was passed in the books.
(d) An amount of Rs. 200 due from Mahesh Chand, which had been written off as a Bad Debt in a previous year, was
unexpectedly recovered, and had been posted to the personal account of Mahesh Chand.
(e) A Cheque for Rs. 100 received from Man Mohan was dishonored and had been posted to the debit of Sales
Returns Account.

Question 3: Pass the necessary journal entries to rectify the following errors
i. A credit sale of Rs. 1,700 to Sushil was posted Sunil’s A/c.
ii. A cash sale of Rs. 20,000 to Mukesh was posted to the credit of Mukesh.
iii. A credit sale of old furniture to Bishnu for Rs. 2,700 was credit to Sales A/c.
iv. A cheque for Rs. 12,800 received from Srikant was dishonored and has been posted to the debit of Sales A/c.

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 Chapter 5: RECTIFICATION OF ERRORS

v. Amount of Rs. 5,720 due from Lila Prasad, written off as bad debts in previous year, was recorded and credited
to the personal account of Lila Prasad.
vi. A discounted Bill Receivable for Rs. 32,000 returned by the firm’s bank had been credited to the Bank A/c and
debited to Bills Receivable A/c. A cheque was received later from the customer for Rs. 32,000 as duly paid.
vii. Rs. 4,000 paid for the telephone bill of the telephone at the proprietor’s residence was debited to Postage A/c.
viii. Amount of Rs. 15,000 withdrawn from bank by the proprietor for his personal use has been charged to Trade
Expenses A/c.
ix. Amount of Rs. 3,000 withdrawn from Bank by the proprietor for office use has been debited to Drawing A/c.
x. Rs. 16,000 paid as salary to staff and debited to staff’s personal account.
xi. Rs. 2,000 paid as Rent to Baburam, a landlord, debited to Baburam.

Rectification of Errors: Before Preparing Trial Balance-Affecting One Accounts only

There are some errors which affect one side of an account or which affect more than one account in such a way that
it is not possible to pass a complete rectification entry.
Examples
• Errors due to partial omission
• Errors of casting
• Errors in carrying forward
• Errors in totaling of balancing of an account
• Omission of posting the total of a subsidiary book

Question 4: How would you rectify the following errors in the book of M/s. Rara & Co.
i. The total of the Purchase Book has been under cast by Rs. 100.
ii. The Returns Inward Book has been under cast by Rs. 500.
iii. A sum of Rs. 250 written off as depreciation on Machinery has not been debited to Depreciation Account.
iv. A payment of Rs. 750 for salaries (to Mr. Mohan) has been posted twice to Salaries A/c.
v. The total of Bills Receivables Book Rs. 1,500 has been posted to the credit of Bills Receivable A/c.
vi. An amount of Rs. 1,510 for credit sales to Mr. Hari, although entered in the Sales Book, has been posted
as Rs. 1,150.
vii. Discount allowed to Mr. Satish Rs. 250 has not been entered in the Discount Column of the Cash Book
but it has been posted to his personal accounts.

Question 5: Correct the following errors without opening a Suspense Account:

a. The Sales Book has been totaled Rs. 100 short.
b. Goods worth Rs. 150 returned by Green & Co. have not been recorded anywhere.
c. Goods purchased Rs. 250 have been posted to the debit of the supplier Gupta & Co.
d. Furniture purchased from Gulab & Bros, Rs. 1,000 has been entered in Purchases Day Book.
e. Discount received from Red & Black Rs. 15 has not been entered in the Discount Column of the Cash Book.
f. Discount allowed to G. Mohan & Co. Rs. 18 has not been entered in the Discount Column of the Cash Book. The
account of G. Mohan & Co. has, however, been correctly posted.

Stage 2: After preparation of trial balance but before preparing final accounts
Sometimes the trial balance is artificially made to agree in spite of errors by providing a Suspense Account and putting
the difference in Trial Balance. Suspense A/c will be debited if the total of the credit column in the trial balance
exceeds the total of the debit column. Suspense A/c will be credited if the total of the debit column in the trial balance
exceeds the total of the credit column. Error detected at this stage can only be corrected by passing a complete entry.

Question 6: A book keeper while preparing trial balance finds that the debit exceeds by Rs. 500. He places the
difference to a Suspense Account. Pass the necessary journal entries to rectify the following errors discovered by the
auditor and prepare Suspense Account.
a. A cheque from A for Rs. 150 had been posted to the credit of A as Rs. 100.

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 Chapter 5: RECTIFICATION OF ERRORS

b. Goods worth Rs. 100 purchased from Chandra were entered in the Sales Book. However, the account of
Chandra was correctly credited.
c. A credit balance of Rs. 755 of Rent Received Account was shown as Rs. 570.
d. Goods worth Rs. 130 returned by Jems were entered in the Sales Book and were posted therefrom to the
credit of Jems’ Personal Account.
e. Bills Receivable from Hari Shankar of Rs. 1,600 posted to the credit of Bills Payable Account and also credited
to Hari Shankar.
f. An amount of Rs. 800 owing by a customer had been omitted from the list of Sundry Debtors.
g. A credit item of Rs. 349 has been debited to a Personal Account of Customer as Rs. 439.
h. A discount allowed to a customer has been credited to him as Rs. 145 in place of Rs. 154.
i. Total sales of Rs. 594 had been posted as Rs. 495 in the Sales Account.
j. Discount received of Rs. 1,420 had been debited to discount allowed account.
k. Cash received from Maxy Rs. 720 was posted to the debit of Max as Rs. 270.

Question 7: Pass journal entries to rectify the following errors (after preparation of the trial balance but before
preparation of final accounts.)
A. Goods purchased for Rs. 2,300 from K.K. Traders but wrongly credited Rs. 3,200 to K.K. Traders A/c and
debited to Purchase A/c Rs. 230 only.
B. Goods purchased for Rs. 560 had been posted to the credit of the Supplier’s A/c as Rs. 60.
C. Rs. 400 due from a customer was omitted, to be taken in schedule of sundry debtors.
D. Rs. 34,000 paid for purchase of computer, was charged to Office Expenses A/c.
E. Rs. 5,000 paid to the landlord for rent wrongly debited to Landlord’s Personal A/c.
F. Rs. 3,000 cash withdrawn by the proprietor for personal use debited to Trade Expenses A/c.
G. Bad debt amounting to Rs. 300 recovered but credited to Personal A/c.
H. Sale worth Rs. 2,500 to S.S. Bros. wrongly passed through the purchase day book.
I. Goods worth Rs. 620 returned by a customer were taken into stock but no entry was made in the book.
J. A sale of Rs. 650 to I.P. Pokhrel was entered in the Sales Book as Rs. 560.

Question 8: A firm noticed that its trial balance on Ashadh 31st, 2076 did not agree and as such, the difference (excess
credit) Rs. 750 was carried to the Suspense Account and the books were closed. Ongoing through the records, the
following errors were detected:
a. Annual whitewashing of Rs. 6,000 was debited to Building A/c.
b. A sales return of Rs. 450 from Mr. Gautam was entered in the Sales Book.
c. Return Outwards book under cast by Rs. 100.
d. An item of Rs. 170 was posted as Rs. 710 in the Sales A/c.
e. A credit sales of Rs. 900 to Mr. Dinesh Basnet was debited to Mr. Divesh Basnet.
f. A sum of Rs. 250 received from a debtor was debited to his account.
g. Discount Allowed of Rs. 350 was credited to Discount Received A/c.
h. A sale of Rs. 600 to Miss Manisha was credited to her account.
i. Sales Day Book overcast by Rs. 100.
j. Cash Sales of Rs. 300 to Miss Rachana debited to her A/c in the ledger.
k. A purchase of Rs. 250 had been posted to the debit of Supplier’s Mr. Kamal as Rs. 520.
Show journal entries which are necessary to correct the above errors and prepare the Suspense A/c. Work out their
effect on the Profit & Loss of the concern.

Question 9: On 31st Ashad 2066, a book keeper finds the difference in the Trial Balance and he puts it in the suspense
account. Later on he detects the following errors:
i. Rs.50,000 received from A was posted to the debit of his account.
ii. Rs.20,000 being purchases returns were posted to the debit of purchases account.
iii. Discount of Rs.8,000 received were posted to the debit of discount account.
iv. Rs.9,060 paid for repairs of motor car was debited to motor car account as Rs.7,060.
v. Rs.40,000 paid to B was debited to A's Account.

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 Chapter 5: RECTIFICATION OF ERRORS

Give journal entries to rectify the above errors and ascertain the amount transferred to suspense account on 31st
Ashad, 2066 by showing the suspense account, assuming that the suspense account is balanced after the above
corrections.

Stage 3: After preparing final accounts i.e. in the next accounting period
After the preparation of final accounts, the errors affecting the nominal accounts are rectified with the help of Profit
and Loss Adjustment A/c so that current year’s profit/loss may not be affected as a result of rectification of such
errors.
The balance of Profit & Loss Adjustment A/c is transferred to the Capital Account in case of proprietorship/partnership
concern.

Question 10: A merchant’s trial balance as on 31st Ashadh, 2076 did not agree. The difference was put to a Suspense
Account. During the next trading period, the following errors were discovered:
i. The total of the Purchases Book of one page, Rs. 4,539 was carried forward to the next page as Rs. 4,593.
ii. A sale of Rs. 573 was entered in the Sales Book as Rs. 753 and posted to the credit of the customer.
iii. A return to a creditor, Rs. 510 was entered in the Returns Inward Book; however, the creditor’s account was
correctly posted.
iv. Cash received from C. Dass, Rs. 620 was posted to the debit of G. Dass.
You are required to give journal entries to rectify the errors in a way so as to show the current year’s profit or loss
correctly.

Question 11: The following errors were disclosed in the books of Mr. Madan Guragain on Asadh 31st, 2072. The
difference in the trial balance has been transferred to a Suspense A/c and on correction of errors the Suspense A/c
was eliminated.
A. While carrying forward the total of one page of the sales book to the next, the amount of Rs. 1,850 was written
as Rs. 1,580.
B. Goods bought from a trader amounting to Rs. 152 had been posted to the credit of his account as Rs. 125.
C. Rs. 380 cash received from Miss Karuna was debited to Mr. Karma.
D. Sales to Mr. X of Rs. 450 credited to Miss Y’s A/c as Rs. 540.
E. The total of discount column in the cash book on the debit side was Rs. 715 on one page but was carried forward
to the next page as Rs. 517.
F. A machine stood in the book at Rs. 3,900 was sold for Rs. 1,950 in part exchange of a new machine costing Rs.
8,300 and the net invoice of Rs. 6,350 was passed through the purchase day book.
G. Bad debts amounting to Rs. 710 recovered by credited to Party’s account and included in the list of creditors.
H. A cheque of Rs. 7,200 was paid to a creditor, who allowed 10% cash discount but the payment was wrongly posted
to Purchase A/c as Rs. 720 only without any other entry.
I. An old furniture (of book value Rs. 3,800) was sold for Rs. 2,100 but the proceeds had been wrongly credited to
Sales A/c.
J. A credit purchase of Rs. 2,350 had been passed twice through the Purchase Books.
K. Rs. 620 paid toward carriage for purchase of machinery was debited to Carriage A/c as Rs. 260.
L. Goods purchased for credit from M/s. SK Brothers for Rs. 640 had been entered in the sales day book as Rs. 460,
but the Party A/c was credited by Rs. 460.
Pass necessary rectification entries, close the Suspense A/c. Give necessary journal entries of corrections are made
after preparation of Final A/c.

Question 12: The under mentioned errors were discovered in the books of Miss. Roseleen after the statement of Profit
or Loss had been prepared for the year ended 31st Ashadh, 2076. The difference in Trial Balance was carried to
Suspense A/c in the statement of Financial Position.
Miss Roseleen provided depreciation on Machinery at 10% per annum and on furniture at 5% per annum at the closing
balance. A reserve for Bad Debts was provided at 2% on outstanding Debtors. Net profit for the year was transferred
to Capital A/c.
A. A cheque received of Rs. 8,000 from a customer was not posted to ledger. The corresponding sales invoice was
for Rs. 12,000 which had been wrongly passed through the Sales Day Book as Rs. 2,000 only.

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 Chapter 5: RECTIFICATION OF ERRORS

B. Machinery purchased for Rs. 20,000 on 1st Shrawan, 2075 was wrongly debited to Furniture Account.
C. Sales included Rs. 25,000 for goods sold for cash on behalf of Mr. Charu. Miss. Roseleen was entitled to a
commission of 10% on sales plus expenses for which no adjustment was made. Her trade expenses included Rs.
1,500 as selling expense in connection with the above sale.
D. Some old furniture (Book value on 1st Shrawan, 2075 Rs. 6,000) was disposed-off for Rs. 3,000 on 30th Poush,
2075 but the proceeds had been wrongly credited to Sales A/c.
E. A credit sales of Rs. 5,000 had been passed twice through the Sales Day Book.

Question 13: The draft statement of Profit or Loss of M/s. Pandey Enterprises showed a net profit of Rs. 1,02,800 after
considering the closing stock of Rs. 67,500 on 31st Ashadh, 2070. Subsequently following information was obtained
from the scrutiny of the books.
a. Miss Pandey has taken goods costing Rs. 1,000 for her personal use without making entry in the books.
b. Miss Pandey has given away goods costing Rs. 1,000 as free samples for which no entry was made in the books
of accounts.
c. Purchase for the year included a purchase of furniture costing Rs. 200 on 31st Ashadh.
d. Sales included a sale of furniture having a book value of Rs. 900 for Rs. 850 on 31st Ashadh.
e. Invoices for goods costing Rs. 1,700 have been entered on 26th Ashadh, 2070 but the goods have not yet been
received till 31st Ashadh.
f. Goods costing Rs. 4,000 have been purchased and received on 27th Ashadh but the invoices have not yet been
recorded till 31st Ashadh.
g. Invoices of goods of Rs. 1,000 (cost Rs. 800) were entered on 28th Ashadh but the goods were not delivered till
31st Ashadh.
h. Goods of Rs. 4,000 (cost Rs. 3,200) sold and delivered on 29th Ashadh but the invoices were not entered till 31st
Ashadh.
i. Goods (cost Rs. 2,880, selling price Rs. 3,600) were returned by a customer on 30th Ashadh and were taken into
stock on the same date but no entry was passed in the books.
j. Stock at the end does not include the goods (cost Rs. 6,000, selling price Rs. 7,500) returned by another customer
for which the entry has already been posted.
k. On 26th Ashadh, goods of the sale value of Rs. 2,00,000 were sent on sale or return basis, the period of approval
being two weeks. 20% of these goods have been returned and approved 80% of remaining on 31st Ashadh. Those
goods were sent at a profit of 25% of cost.
Required: calculate the value of stock on 31st Ashadh, 2070 & the adjusted net profit for the year ended on that date.

Question 14: The Profit and loss account of Hanuman showed a net profit of Rs. 6,00,000, after considering the closing
stock of Rs. 3,75,000 on 31st Ashadh, 2076. Subsequently the following information was obtained from scrutiny of the
books:
(i) Purchases for the year included Rs. 15,000 paid for new electric fittings for the shop.
(ii) Hanuman gave away goods valued at Rs. 40,000 as free samples for which no entry was made in the books
of accounts.
(iii) Invoices for goods amounting to Rs. 2,50,000 have been entered on 27th Ashadh, 2076, but the goods were
not included in stock.
(iv) In Ashadh, 2076 goods of Rs. 2,00,000 sold and delivered were taken in the sales for Shrawan, 2076.
(v) Goods costing Rs. 75,000 were sent on sale or return in Ashadh, 2076 at a margin of profit of 33.33% on
cost. Though approval was given in Shrawan, 2076 these were taken as sales for Ashadh, 2076.
Calculate the value of stock on 31st Ashadh, 2076 and the adjusted net profit for the year ended on that date.

Question 15: Miss Daisy was unable to agree the Trial Balance last year and wrote off the difference to the profit and
loss account of that year. On verifying the old books by a Chartered Accountant next year, the following mistakes were
found.
i. Purchase account was undercast by Rs. 8,000.
ii. Sale of goods to Mr. Rahim for Rs. 2,500 was omitted to be recorded.
iii. Receipt of cash from Mr. Asok was posted to the account of Mr. Anbu Rs. 1,200.
iv. Amount of Rs. 4,167 of sales was wrongly posted as Rs. 4,617.

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 Chapter 5: RECTIFICATION OF ERRORS

v. Repairs to Machinery was debited to Machinery Account Rs. 1,800.

vi. A credit purchase of goods from Mr. Paul for Rs. 3,000 entered as sale.
Suggest the necessary rectification entries.

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