Chapter 4

Rectification of Errors
To Er is human' is a familiar proverb. Errors or mistakes may be committed in
ifferent stages of the accounting process. The errors have to be located and
ected at
corected at the
t earliest to ensure the correctness of accounts. If errors are not
rectified, the profit disclosed by the profit and loss account cannot be relied
upon. Similarly, the Balance sheet also becomes undependable.
Classification of errors
Numerous errors are usually committed in maintaining accounts. Appropriate
classification of all the errors provides the necessary comprehension to rectify
them. There are three ways in which the errors can be classified:
I.Nature of error as Basis:
Depending on the nature of error committed, errors can be classified as follows.
A. Errors ofomission B. Erors of commission
C.Erorsofprinciple D. Compensating errors

A Errors of omission
This category includes omission of a'transaction either in the journal
or

subsidiary books or in the ledger. The omission can be complete partial.

or

When a transaction is not at all recorded in jounal or subsidiary books,

it is complete omission. Similarly, when a transaction is not at all posted
omission.
to the ledger, (both debit and credit) it is also complete
and the remaining portion is
When a part of a transaction is recorded
cash received from a customer
omitted, it is partial omission. For example,
is entered in the cash book but not posted to the customer's account.
B. Erors ofcommission
should not have been done.
Commission' means doing something which
concentration or carelessness.
his applies toall mistakes due to lack of
committed in subsidiary books.
The following errors of commission anre usually
amount in a subsidiary book.
Hrong entry: Entering wrong
in a wrong
correct amount or wrong amount
Entry in wrong book: Entering
subsidiary book.
Subsidiary books are to be totalled periodically and posted
Wrong casting:
to the ledger. The totalling of any particular subsidiary book may be wrong
 4.2 Financial Accounting
Wrong entry and entry in wrong book usually affect both the di
debit and
Wrong casting affects
credit. So, mistake occurs in two different accounts. wrong castingaffecte
one account. There will not be any mistake in the personal account only
The following errorsof commission are usualy committed in ledger:
1. Errors of posting and 2. Errors of balancing
Errors ofposting may be
Right amount in the right side of wrong account.

Right amount in the wrong side of correct account.

Wrong amount in the right side of correct account.

Wrong amount in the wrong side of correct account.
Wrong amount in the wrong side of wrongaccount.
Wrong amount in the right side of wrong account, et¢.
Errors of balancing can occur in one or more accounts in the ledger while
ascertaining the balance, either periodically or at the time of preparing trial balance
CErrors ofprinciple
These mistakes occur due to improper application of principles of accounts
Errors of principle may relate to different aspects.
1. Capital and revenue items: Purchase of assets may be recorded in purchases
book, treating capital expenditure like a revenue item. Similarly, sale of
fixed assets may be showm in sales book. Expenditure on repairs may be
debited to machinery account. Wages spent for erection of equipment may
be debited to wages account.
2 Improper valuation: Valuation of investments and stocks against the
recognised practices.
3. Erratic provisioning: Providing insufficient or excess provisions for
depreciation, provision for doubtful debts, etc.
D. Compensating errors
Errors which neutralise each other are called compensating errors. The eror
is usually in unrelated accounts but the amount will be the same. Thus, excess
debit in one account may be compensated by excess credit in another account.
L. Effect on Trial Balance as Basis:
Ifimpacton Trial Balance is considered, we have two categoriesofemos
1. Errors which are disclosed by trial balance: All errors of commission are

usually disclosed by trial balance because the mistakes affect theagreemcu

of trial balance. Errors of posting, casting, balancing, carrying forward e
affect the balance of the accounts concerned. Errors of partial omissiona
affect the agreement of trial balance because either debit or credit is partiay
omitted.
Rectification of Errors 4.3
which are not disclosed hy trial balance: Errors of principle result
2 Errors
in equal debit and credit though technically the treatment is wrong. So,
trial balance is not affected. Erors of complete omission ignore both debit
and credit and thus have no effect on trial balance. Errors of duplication
occur when the same transaction is recorded twice. Compensating errors
which balance each other etc., also do not affect the agreement of trial
balance.
Posting to the correct side of wrong accounts, wrong amounts recorded in
Subsidiary books etc., also do not affect the agreement of trial balance.

I. Number of accounts affected as basis

From the point of view of rectification whether an eror affects a single account
or it affects two or more accounts is very important. On the basis of this criterion,
errors are classified as follows:
1. Single sided errors or errors which affect one account.
2. Double sided errors or errors which affect two or more accounts.
Single sided errors include most of the errors of commission like errors of

posting, casting, carry forward, balancing etc. They can be rectified by an

explanatory note in the account concerned or by passing a journal entry using

suspense account.

Double sided errors include errors of complete omission, errors of principle,

posting to wrong account etc. Since these errors affect two or more accounts,
they are usually rectified with the help of a journal entry. Only when it is not
possible to pass a journal entry, 'explanatory note' can be written in the account
concermed as rectification.
Rectification in different stages of accounting cycle
In book keeping, errors cannot be rectified by striking off the wrong amount
or entry and introducing the right amount or entry.
Neutralisation' and 'Restoration' are the principles used for rectification of
eTors. Appropriate entry is passed or suitable explanatory note is written in the
account or accounts concerned to neutralise the effect of error and restore the
correct position.
"Rectification of errors is done in three different stages, following different
procedures. The stage in which rectification is done depends on identification or
locating the error.
Stage I: Rectification before preparation of trial balance
f mistakes are located before preparing trial balance, they can be rectified
with the help of explanatory notes in the affected account or by means of a
1ournal entry. Suspense account is not at all opened.
4.4 Financial Account
trial balance, but before fina
Stage I1: Rectification after preparing lising
the accounts
Trial balance would not have tallied due to errors and the differena
have been placed to a "Suspense Account. So, wherever applicable e.ud ifference woule
rectification.
able, suspense
account is used while passing entries for
Stage Ill: Rectification after preparing final accounts, generaly in tha
subsequent accounting periods
Suspense account is used for rectification wherever applicable. Howe.
ble. However,
errors afectingthose accounts which appear in trading or profit and loss aee
must be rectified by using "Profit and loss adjustment account' or 'Cani
account'. This becomes necessary because the affected accounts were
closed by transferring them either to trading account or profit and loss previously
accoi
Basic Principle for rectification of errors
All errors, whatever may be their type or nature, result in one
four positions in one or more accounts.
of the following
(a) Excess Debit in one or more accounts: This must be rectified by
the excess amount to the concerned account or accounts.
'crediting
b) Short Debit in one or more accounts: This must be rectified
debit to the account or accounts involved.
by a further
(c)Excess credit in one or more accounts: This can be rectified by debiting
the respective account with the excess amount
involved.
(d) Short credit in one or more accounts: This can be rectified a
credit to the account or by further
accounts involved.

Suspense Account
Need for suspense account
Locating and rectifying errors in accounts is a continuing process. It takes
place throughout the year. However, at the end of the
balance is prepared as a accounting year, tria
prelude Final accounts. If the trial balance does not
for
tally, difference is ascertained and effort is made to locate
the errors. However,
preparation of final accounts cannot be delayed
any unaccounted beyond a reasonable period. So
difference in trial balance is placed to a suspense
After completing the final accounts, mistakes
account
can be located and rectined
gradually.
The balance in suspense account
is the net effect of all the errors which affect
the trial balance. If debits are short and
credits are in excess in the trial balanoe,
the difference is placed to
suspense account as a debit balance. It appears on un
assets side of the balance sheet.
Similarly, if credit is short and debit is in excess
in the trial balance suspense account
will be a credit balance and will be shown
on the liabilities side of the
balance sheet. Thus 'suspense account helps "
tallying the balance sheet.
Rectificaton of Errors 4.5
Whenever mistakes are located entries are passed debiting or crediting tne
IS Dense account. When all the errors are rectified, suspense account is
susp
automatically closed.
If rectification involves debiting and crediting two accounts with the same
mount, then the rectification entry will not involve the suspense account. This
amd
is possible in double sided errors.
In all single sided errors, rectifications involve the suspense account because
the error had affected only one account.
EFFECT OF RECTIFICATION ON NET PROFIT
Iferrors are located immediately after finalising the accounts it is possible to
corect the net profit in the light of the rectification of errors. Even otherwise, it is
ISeful to ascertain the effect of rectification on the net profit.
The following are the guidelines for assessing the effect of rectification on
the gross profit and net profits.
If trading account debit side items like purchases, wages and carriage are
debited in a rectification entry, the gross profit decreases and net profit also
reduced by the same amount. Similarly, if the above items are credited in a
rectification entry the gross profit and net profit will go up to the extent of
the credit so given.
2 If trading account credit side items like sales and closing stock are debited
in a rectification entry, gross profit and net profit are reduced to that extent.
Similarly, if these items are credited, gross profit and net profit will go up to
that extent.
If profit and oss account debit side items like salaries, rent, depreciation
etc. are debited in a rectification entry the net profit decreases to that extent.
If they are credited, net profit increases to that extent.
4 If profit and loss account credit side items like discount received, interest
received are debited in a rectification entry net profit reduces to that extent.
Similarly, if these items anre credited net profit goes up to that extent (refer
illustrations 11,12 and 13)
Rectification of errors during a subsequent period
ferors are located during subsequent accounting years, the following aspects
should be noted for the purpose of rectification.
As perthe requirement, personal accounts and real accounts can be debited
and credited in the rectification entries. Similarly, suspense account can
also be debited or credited as the case may be.
2 t is not
possible to debit or credit accounts, which usually closed by
are
transferring to trading account or profit and loss account because those
accounts were already closed for the year in which the error was committed.
fthe nominal accounts or the goods accounts are debited or credited as a
part of rectification, the subsequent years accounts in which rectification is
made, will be unnecessarily affected.
 4.6
Financial Ac
ownerscountcaninbeg
3. Profit and loss adjustment account or capital account of the
directly debited or credited for the purpose of rectification. after
the impact of rectificatiom on the profit.
The same guidelines given above for "effect of rectification
sSessing
on net
profit are
.

applicable to assess the effect of rectification on net profit.

If profit decreases because of rectification of
errors, the profit
and and
adjustment account or capital account must be debited.
increases because of rectitication, the protit and loss Similarly, when oss
adjustment acc
capital account must be credited (refer illustrations 15 and 16)

ILLUSTRATIONS
One-Sided Errors
1. Errors of Totalling or Casting
Ilustration 1
Rectify the following errors:
(a) Purchases Book is over cast by Rs. 300 (for the month of
(b) Sales book has been under cast by Rs. 200. March).
c) FPurchase
(c) Returns Book has been over cast by Rs. 75.
d) Sales Returns Book has been under cast by Rs. 50.
Solution:
Explanation:
S.No Nature of mistake Efectof mistake Rectification
(a) Over casting of Excess Debit Credit the
Purchases Book Purchases Ac
(6) Under casting of Under Credit Credit Sales A/c
Sales Book
(c) Over casting of Excess Credit Debit Purchase
Purchase returns Book Returns A/c

(d) Under casting of Under Debit Give a further debit

Sales Returns Book toSales Retuns A/c
Rectification: To rectify the errors:
(a) Credit purchases A/c with Rs. 300
(b) Credit Sales A/c with Rs. 200.
(c) Debit purchase Returns Alc with Rs. 75.
(d) Debit Sales Returns Alc with Rs. 50.
Rectification of Erors 4.7
I. Errors ofCarry Forward
llustration 2
) Purchases book is caied forward Rs. 350 less.
i) Sales Book total is carried forward Rs. 500 more.
(ii) A total of Rs. 758 in the Purchases Book has been carried forward
as Rs.857.
(iv) The total of the Sales Book Rs. 755 on page 20 was carried forward
to page 21 as Rs. 557.
(v) Purchase Returms Bookwas carried forward as Rs. 1,520 instead
ofRs.5,120.
Solution:
Explanation:

S.No. Nature of mistake Effectofmistake Rectification

Carrying forward lower Under debit Give further debit to
amountin Purchases book Purchases Alc
i) Carying forward higher Excess Credit Debit Sales A/c
amountin Sales Book

i) Carrying forward higher Excess debit Credit Purchases A/c

amount in Purchases Book
(v) Carying forward lower Under credit Give further credit to
amount in Sales Book Sales A/c
(v) Carrying forward higher Excess Credit Debit Purchase
amountin Purchase Returns Book Returms A/c
Rectification:
) Debit Purchases A/c with Rs. 350
Gi) Debit Sales A/c with Rs. 500
(ii) Credit Purchases Alc with Rs. 99
(iv) Credit Sales A/c with Rs. 198
(v) Debit Purchase Returns A/c with Rs. 3,600
IIL. Errors of Posting
lllustration3
Rectify the following errors:
) Purchases from Akila for Rs. 1,500 has been posted to the debit
side of her account.
() Sales to Vijay for Rs. 1,520 has been posted to his credit as
Rs.1,250.
m) Purchases from Chandra for Rs. 750 has been omitted to be posted
to the personal A/c.
(v) Sales to Kandan for Rs. 780 has been posted to his account as
Rs.870
4.8
Financial Accounting
Solution:
i) Purchases from Akila should have been posted to the credit of
but it has been debited. Akitla's Aic
Hence
Credit Akila's A/c with double the amount i.e., Rs. 3,000.
(i) Sales to Vijay must find itself on the debit side of Vijay's:
account is credited with Rs. 1,250. accountbut his
Hence:
Debit Vijay's A/c with Rs.1,250 + Rs.1,520 i.e., Rs. 2,770
(ii) This is an omission to post to the Personal A/c. Note that postina.
to the credit of Chandra's Alc.
Hence:
Post Rs. 750 to the credit of Chandra's Alc.
iv) Here Kandan's A/c has been debited with a wrong amount
amount. To rectify this error, the excess amount must
i.e., with excesa
be credited to his
account.
Hence
Credit Kandan's A/c with Rs. 90.

Comprehensive Illustrations for One sided Errors

Illustration 4
How would you rectify the following errors in the books
A payment of Rs. 1,500 for salaries
of Kamal &Co.?
(to Sundar) has been posted
twice to Salaries Account.
) The total of the Purchases Book has been under cast by Rs. 300.
() The total of Bills Receivable Book Rs. 1,000 has been posted
the credit of Bills Receivable Account.
to
(iv) The Returns Inward Book has been under cast by Rs. 75.
(v) A sum or Rs. 400 written off as depreciation on Machinery has not
been credited to the Machinery Account.
(n) Discount allowed to Ramya Rs. 125 has not been
entered into
discount column of the Cash book but it has been posted to bis
Personal Account.
(vi) An amount of Rs. 252 for a credit sale to Harish, although correeuy
entered in the Sales Book, has been posted as Rs. 225.
Solution:
) The excess debit will be removed by a credit in the Salaries Account oy
the entry: "By double posting on.. .
by Rs. 1,500".
i) The Purchase account should receive another debit of Rs.300 since
debited short previously.
"To under casting of purchases book for the month of.. RS.300
and
(ii) Rs. 1,000 should have been debited to the Bills Recelvable Accou
should
not credited. To correct the mistake, the Bills Receivable Account
be debited by Rs. 2,000 by the entry:
"To Wrong posting of Bills Receivable received on S. 2,000
Rectification of Erors 4.9
(iv) Due to this error, the Returns Inward Account has been posted short by
s. 75. The rectifying entry will be:
To under casting of Retums Inward Book for the month of. Rs. 75"
(v) The omission of the credit to the Machinery Account will be rectified by
the entry.
"By Omission of posting on.. Rs. 400"
(vi) Dueto this error, the Discount Account has been debited short by Rs.125.
The required entry is :
To Omission of discount allowed to Ramya on. . Rs. 125"
(vii) Due to this error, Harish has been debited short by Rs. 27. The correct
entry is:
To difference in amount posted on.. Rs. 27"
Wustration5
Rectify the following errors:
Sales to Sridhar Rs. 152, posted to his account as Rs. 125
)Purchased goods from Manohar Rs. 550, credited as Rs. 505.
) ReceivedBills Receivable from Seenu Rs.1,000, posted as Rs.100.
iv) Purchased furniture from Raghu Rs 404 on credit debited as
Rs.440.
() Discount allowed Rs. 64 to Anbu credited to his account as Rs. 46.
(vi) Discount received Rs.37 from Babu posted to his account as Rs.39.
(vii) Purchased furniture on cash for Rs. 2,000 was not posted.
Solution:
Debit Sridhar's A/c by Rs. 27.
) Credit Manohar's A/c by Rs. 45.
(i) Credit Seenu's A/c by Rs. 900. Bills Receivable A/c is correct.
iv) Credit furniture A/c by Rs. 36 being excess debit given to furmiture Alc.
Raghu's Alc is correct.
(v) Credit Anbu's A/c by Rs. 18.
(vi) Credit Babu's A/c by Rs. 2.
(vii) Debit furniture A/c by Rs. 2,000. Cash A/c is correct as there is no mistake
in recording this transaction.

Double-sided Errors
lustration6
The following errors were found in the books of Prabhakar & Sons. Give the
Decessary entries to correct them:
(@) Salary of Rs. 1,000 paid to a Mohan due to him has been debited to his
personal account.
6) Rs. 1,500 paid in cash for a typewriter was charged to office expenses
account.
) Rs. 5,000 paid for furmiture purchased has been charged to purchases
account.
d) Repairs made were debited to Building Account for Rs. 250.
(e) An amount of Rs. 500 withdrawn by the proprietor for his personal use has
been debited to trade expenses account.
(1) Rs. 200 received from Shanthy & Co., has been wrongly entered as from
Shajahan &Co.
 4.10
Books of Prabhakar & Sons
Financial Account
Solution:
Rectifying Journal Entries

Errors Particulars
L.F Debit
Rs Credit
(a)SalariesA/c Dr. Rs.
To Mohan Alc 1,000
of wrong debit to Mohan's
ICorrection
personal A/c for salaries paid)
1,000
b) Typewriter Alc
Dr. 1,500
To Office expenses A/c
[Correction of wrong debit to office 1,500
expenses Ac for purchase of typewriter
(C) Furniture A/c Dr.
To Purchases A/c 5,000
[Coection of wrong debit to purchases 5,000
account for furniture
purchased]
(d) Repairs Alc
To Building A/c
Dr. 250
[Corection of wrong debit to building 250
Account for repairs made]
(e) |Drawings A/c
Dr. 500
To Trade expenses A/c
[Corection of wrong debit to Trade S00
Expenses A/c for cash withdrawn
by the proprietor for his personal use]
(Shajahan& Co. A/c Dr. 200
To Shanthi & Co. Alc
200
(Correction of wrong credit to Shajahan& Co.
insteadof Shanthi &Co.]
llustration 7
Give journal entries to
rectify the following errors:
0) A purchase of goods from
Deva
wrongly passed through the salesamounting
to Rs. 250 has been
book.
0) A credit sale of
goods Rs. 300 to Raja has been wrongly passeu
through the purchases book.
() Sold old furniture for Rs.
1,500, passed though the sales book.
(1v) Paid wages for the
construction of Building debited to wages
account Rs. 10,000.
lor Rs. S00 received from Madan was dishonourvd and
(Ahadcheque
been posted to the debit of sales returns account.
(Vi) Paid Rs. 1,000 for the installation of Machinery debited to wag
account.
(vi) On 31st Dec. 1996 goods of the value of Rs. 500 were returmcu
S. Singh and were taken into stock on the same date, but no enuy
was passed in the books.
Rectification of Errors 4.11

Solution:
Rectifying Journal Entries
Errors Particulars L.F Debit Credit
Rs. Rs.
() Purchases Alc Dr. 250
Sales A/c Dr. 250
To Deva Alc 500
[Correction of wrong entry in sales
book of a purchase of goods from Deva]
(i) Raja A/c Dr. 600
To Purchases A/c 300
To Sales A/c 300
[Correction of wrong entry in purchases
book of a credit sale of goods to Raja]
ii) SalesA/c Dr. 1,500
To Furniture A/c 1,500
[Correction of wrong credit to sales
account for sale of old furniture]
iv) Building A/c Dr. 10,000
To Wages Alc 10,000
[Correction of wrong debit to wages
account for wages paid for
construction of building
(v) Madan A/c Dr. 500
To Sales Returns A/c 500
[Correction of wrong debit to sales
returns account for dishonour of cheque
received from Madan]
(vi) Machinery Alc Dr. 1,000
To Wages Alc 1,000
[Corection of wrong debit to wages
account for wages paid for installation
of machinery]
(vii) Sales Return A/c Dr. 500
To S. Singh Alc 500
[Entry of goods returned by him and
taken into stock omitted from records]

Suspense Account
Illustration8
A Trial Balance is prepared and the book keeper finds that it disagrees, there
being an excess debit of Rs. 1.270. The time in hand to trace the errors being
short, he places the difference to the credit of a newly opened account called
Suspense Account.
He subsequently discovers the
following errors. Pass rectifyingjournal entries
with view to close the
a
Suspense Account. Show also the Suspense Account.
4.12
) The Day Book is totalled Rs. 50 short.
inancial Accoun
(i) Payment of trade expenses Rs. 275 entered on the
(i)
the cash book is omitted to be posted. payment
Commission Rs. 125 paid, has been posted twice toc
side of
account.
iv) A sale to A. Gopal for Rs. 195 though correctly entered
commission
Book is debited to A. Gopal Account as Rs. 465 e Dsy
(v) Goods bought from L. Lal for Rs. 500 though
correctly
the invoice book is debited to L. Lal's personal accounten in
being credited to him. nstead of
(Vi) Discount column on the receipts side of cash book .
Rs.615 has been added up to showRs. 715. totaling
Solution:
Rectifying Journal Entries
Errors Particulars LF Debi Credit
Rs.
) Suspense Alc
Rs
Dr. 50
To Sales A/c
[Rectifying under credit to sales A/c] 50
(i) Trade Expenses Alc Dr. 275
To Suspense A/c
275
[Rectifying omission to debit
trade expenses account
Gii) Suspense Alc Dr. 125
To Commission A/c
125
[Rectifying double posting to commission A/c]
(iv) Suspense A/c Dr. 270
To A. Gopal A/c
270
[Rectifying excess debit to Gopal's A/c]
(v) Suspense A/c Dr. 1,000
To L. Lal A/c 1,000
[Rectifying wrong debit, instead of credit
of Rs. 500 to L. Lal's A/c]
(vi) Suspense Alc Dr. l00
To Discount Alc 100
[Rectifying over debit given to discount
account through error in totalling]
Suspense Account
Rs.
To A. Gopal A/c
Rs
270 1,270
To Sales A/c
By Balance b/d
275
0 By Trade expenses Ac
To L. Lal A/c
To Commission A/c
1,000
125
To Discount A/c
100
T.545 1.345
 Rectification of Erors 4.13
Jllustration 9
Correct the following erTors found in the books of Mr. Dhandapani. The 'Trial
alance was out by Ks. 86, excess credit. The difference has been posted to a
Bal
Suspense account.

) A Sale of Rs. 400 to Bobby & Co.. was wrongly credited to their
account.
) A purchase of Rs. 134 had been posted to the creditor's account as
Rs.120.
(i) The total of returns inward book for December had been cast
Rs. 200 short.
(iv) A cheque for Rs 400 received from Sandhya had been dishonoured
and was posted to the debit of "Allowance Account".
Solution:
In the Books of Dhandapani
Rectifying Journal Entries
Errors Particulars L.F Debit Credit
Rs. Rs.
i) Bobby & Co A/c Dr. 800
To Suspense A/c 800
[Being the correction of the mistake by
which the account of Bobby & Co. was
credited by Rs. 400 instead of being debited]
i) Suspense A/c Dr. 14
To Creditor's A/c (personal A/c) 14
[Being the mistake in crediting the creditor's
account less by Rs. 14 now corrected]
(ii) Retum Inward A/c Dr. 200
To Suspense Alc 200
[Being the mistake oftotalling the Return
Inward Book corrected]
iv) Sandhya A/c Dr. 400
To Allowances A/c 400
Being the cheque of Sandhya dishonoured
previously debited to Allowances Ac]

Suspense Account
1996 Rs. 1996 Rs.
Dec. 31 To Difference in Trial Dec. 31 By Bobby & Co. A/c 800
Balance 986 By Returns Inward A/c| 200
To Creditors A/c 4

1,000 1,000

AS) 7I 7-8
4.14 Financial Accour
Illustration 10
failed to balance his balance, trial the credie odt
side s

A book-kceper
debit side by Rs.
1,750.
were
This amount
discovered:
was entered inaa suspeneedin
suspense account, exceeding he
the following errors
worth Rs. 6,200 sold to Rahim were correct entered in the
) Goods to Rahim account as Rs. redin
Sales Book, but posted 2,.600
Rent Receivah.00.
Acredit balanceof Rs.7.550of
) was shown
as Rs. 5,700.
(in) Thetotal of Returns outward book amounting to Rs.2.000 wa.
posted to ledger.
(iv) Goods worth Rs. I,000 purchased irom Prema were wrone
in the sales book. The account of Prema was correctlv. tered
ycredited.
under cast by Rs. 1,000.
(v) The Sales book
was

(vi) The total of the credit side of Dravid's account was ver cast
Rs. 1,000. by
Give the journal entries to rectify the above errors and prepare the
the sui
suspense
account.

Solution:
Rectifying Journal Entries

Errors Particulars LE Debir Creit

Rs.Rs
Rahim A/c Dr. 3,600
To Suspense Alc 3,600
[Beinggoods sold for Rs. 6,200 were correctly
entered in sales book, but wrongly posted to
Rahim's account as Rs. 2,600, now correctéd]
(ii) Suspense A/c Dr. 1,850
To Rent Receivable A/c 1,80
[Being a credit balance of Rs. 7,550 ofrent receivable
|A/c was shown as Rs. 5,700 now corrected]
(ii) |Suspense A/c Dr. 2,000
To Retums outward A/c 2,000
Being the total of returns outward book
was not posted to ledger, now rectified]
(iv) Purchases Alc Dr. 1,000
Sales A/c Dr. 1,000
2,000
To Suspense A/c
[Being correction of wrong entry in sales book of a
purchase of goods from Prema.The account of Prema
was correctly credited]
(v) Suspense Alc Dr. 1,000 I,000
To Sales A/c
[Being the sales book which was under cast,
now corrected]
(vi) Dravid A/c 1,000
Dr.
1,000

To Suspense A/c
[Being the credit side of Dravid's Alc
which was over cast, now
corrected
Rectification of Errors
4.15
Suspense Account
Rs.
Rs
in Trial Balance 1,750
To Difference By Rahim A/c 3,600
Receivable A/c 1,850
To Rent By Purchase A/c 1,000
Outward Ac 2,000
To Returns By Sales Alc 1.000
To Sales Alc 1,000 By Dravid A/c 1,000
6,600 6,600
Drenaration of Suspense A/c and ascertaining the effect on profit
Tilustration 11
Rectify the following errors. Calculate the difference in the Trial Balance.
Prepare Suspense account and find out the effect of these errors on net profit.
)An item of Rs. 300 relating to prepaid rent account was omitted to be
brought forward.
() Purchased goods from Narayan Rs. 600, passed through sales book.
)Received a Bill of exchange from Anand for Rs. 1,000 and passed it
through sales book.
iv) Rs.1,000 paid to Mala against our acceptance was debited to Malar
account.
() Bill received from Jolly for repairs done to T.V. Rs. 300 and T.V.
supplied for Rs. 1,900 was entered in the purchases book as
Rs.2,000.
(vi) Received final dividend of Rs. 400 from Ajay whose account had
already been written off as bad debt, was credited to his newly
opened account and was included in the list of creditors.

Solution:
Punjab, B.Com., 1970 Adapted
Rectifying Journal Entries
Errors Particulars LF Debit Credit
Rs. Rs.
) Prepaid Rent A/c Dr 300
To Suspense A/c 300
[Being the balance of prepaid rent A/c
omitted to be brought forward, now corrected
)Purchases
Sales A/c
Alc Dr.
Dr.
600
600
To Narayan A/c
1,200
Being purchase of goods wrongly entered
in sales book, now
corrected]
(ii) Bills Receivable A/c Dr. 1,000
Sales A/c Dr. I,000
To Anand Alc
2,000
[Beingbill received from Anand, wrorigly
entered in the sales book, now corrected
4.16 Financial Accounting
Particulars L.E Debil Crediu
Errors
Rs.
Rs
Dr. 1.000
(iv) Bills Payable Ac
To Malar's Alc
.000
(Being payment made for acceptance
now rectified)
wrongly debited to Malar A/c,
Dr. 1,900
()T.VAc
Repairs A/c Dr. 300
To purchases A/c
To Suspense Alc
2,000
200
[Being the bill of the purchase of T. V. and
repairs wrongly entered in the invoice book,
now comected]
(vi) Creditors A/c Dr. 400
To Bad debts recovered Alc 400
[Being the amount ofbad debts recovered,
wrongly credited to Ajay, now corrected]

Suspense Account

Rs. Rs.
To Difference in Trial Balance 500 By Prepaid Rent A/c 300
By Sundries A/c 200
500 500
Effect of errors on the net profit
Memorandum Profit & Loss Account
Rs. Rs.
To Purchases A/c 600 By Bad debts Recovered A/c 400
To Sales A/c 600 By Purchases A/c 2,000
To Sales A/c 1,000 By Net loss 400
To Prepaid rent A/c 300
To Repairs 30
2,800 2,800
Due to the above errors, the profit of last year must have been increased oy
Rs 400
Ilustration 12
An accountant could not tally the Trial balance. The diference
temporarily placed to suspense account for preparing the final accouns
following errors were later discovered.
() Commission of Rs. S0 paid, was posted twice, once to discou
account and once to commission account.
(ü) The sales book was under cast by Rs. 100.
book»
(1) A sale of Rs. 278 to Raja though correctly entered in Sales
was posted wrongly to his account as Rs. 386.
Rectification of Errors 4.17

(iv) A Purchase from Rs. 184, though correctly entered in

Nataraj of
purchases book, was wrongly debited to his personal account.
(v)Discount column of the receipt side of the cash book was wrongly
added as Rs. 280 instead of Rs. 240.
(vi) Entertainment expenses Rs. 190, though entered in the cash book.
were omitted to be posted in the ledger.

You are required to:

)Pass the necessary rectifying entries
() Prepare Suspense Account and
(i) State the effect of each ofthe rectification on the profit. What would
ethe correct profit ifthe profit originally arrived at was Rs. 20,000?
IMadras BCS (SYIA) Nov. 2006 (Modified)]
Solution:
Rectifying Journal Entries

Particulars LF DebitCredit
Errors
Rs. Rs.

) Suspense A/c Dr. 50

To Discount A/c 50
[Being amount wrongly debited to discount
account, now rectified]
Dr. 100
(i) |Suspense A/c
To Sales A/e 100
by Rs. 100
[Being Sales book undercast
now rectified]
Dr. 108
(ii) |Suspense A/c
To Raja A/c 108

|[Being wrong posting of sale of Rs. 278 to

Raja as Rs. 386, now rectified]
(iv) Suspense A/c Dr. 386
To Nataraj Alc 368

[Being purchase of Rs. 184 from Nataraj

wrongly debited to his personal account,
now rectified]
(V) |Discount A/c Dr. 40
To Suspense Alc 40
Being amount ofexcess credit in discount
account, now rectified]
(vi) Entertainment expenses A/c Dr. 190
To Suspense Alc 190
[Being rectification ofamount not
debited to entertainment account in ledger]
4.18 ncial Accountin,
Suspense Acount ing
Rs.
To Discount A/c 50 By Balance b/d (Bal.fig) Rs
To Sales A/c 100 By Discount A/c 396
To Raja A/c 108 By Entertain1ment 40
To Nataraj Ac 368 expenses A/c
626 190
loss account will be affected as follows: 626
The profit and
) Discount is decreased by Rs. 50,; This will increase the fit.
() Sales is increased by Rs. 100; This will increase the net profit
(ii) No effect on profit.
(iv) No effect on profit.
()Discount is increased by Rs. 40; This will decrease the profit.
(vi) Entertainment expenses are increased by Rs. i90: This will crease the
profit.
Effect of Errors on profit

Rs.
Balance of Profit 20,000
Add: (i) 50
i) 100 150
20,150
Less: (v) 40
190 230
Correct Profit 19,920
ldustration l13
Pass rectifying entries for the following and point out their effect on profit or
loss:
)An amount ofRs. 600 withdrawn by the proprietor for his persona
use, is posted to travelling expenses account.
i) A customer's cheque of Rs. 300 received through Sankaran was
credited to Sankaran's Account.
i) Rs. 900 spent in the extension of plant & machinery are posted o
wages account.
i
(V) Rs. 1,120 were.spent in the repair ofa machine but this amount
posted in machinery account.
(V) Goods of Rs. 400 were returned by Mohinder, these goods wer
included in stock but no record for it was made in the books or

account.
(vi) Gowri Shankar's cheque of Rs. 500 was dishonoured, itsamou

was posted to allowance account.

(VI1) Rs. 6,000 spent in extension of factory building were charged
Repairs Account.
Rectitication of Errors 4.19
Solution:

Rectifying Journal Entries

Particulars LF Dehit Credit
Errors
Rs. Rs.
(i) Drawings A/c Dr. 600
To Travelling expenses Alc 600
(Being wrong posting to travelling
expenses Alc now rectified
Sankaran A/c Dr 300
()
To concerned customer A/c 300
[Being amount of Rs. 300 of acheque received
through Sankaran wrongly credited to his
account now rectified
900
(ii) Plant&MachineryA/c Dr.
900
To Wages A/c
[Being wrong postingto wages account,
now rectified
(iv) Repairs Alc Dr. 1,120
To Machinery Alc 1.120
[Being wrong posting of Machinery Alc
nowrectified]
Returns Inward A/c Dr. 400
(V) 400
To Maninder Alc
[Being entry made for omission]
Gowri Shankar's Alc Dr. 500
(vi)
To Allowances A/c 500
[Being wrong posting of allowances
account now rectified]
Dr. 6,000
(vii) Factory Building A/c 6,000
ToRepairs A/c
[Being wrong posting to repairs A/c
now rectified]
Effect on Gross Profit and Net Profit

Entries Gross profit Net Profiu

Rs. Rs.
(0) +600
(i)
ii) +900 +900
- 1,120
iv)
(v) 400 -400
(vi) X +500
(vii) X +6,000
500 6,480
The effect of above rectifying entries is that gross profit will increase by Rs. 500 and
net profit will increase by Rs. 6,480.
4.20
Financial Account
Illustration 14
The difference of Trial Balance ofa Trader Rs. 1,118 has been tranel.
Suspense Account. Later on the following errors were discovered, a
necessary rectifying entries. Open Suspense Account and show the h e
discovered. ferred
Pas to
he effect of
rectifying entries on profit or loss.
Depreciation of Rs. 200 was charged on Machinery but it wae
recorded in depreciation account.
) A discount of Rs.82 was allowed to Rajesh, but in his count
Rs. 28 was recorded. only
(n) A Sale of Rs. 344 was recorded in Sales Account as Rs. 434
iv) A Machinery of Rs. 4,000 was purchased, but was recorded in
purchases book.
()Instead of crediting Rs. 1,024 in Madan's Account Rs. 430 were
Te
debited in his account.
(vi) Total of Sales Returns Book was under cast by Rs. 100.
IMadras, B.Com, (PZIA) Nov. 2003
Solution:
Rectifying Journal Entries

Errors Particulars L.F Debit Credit

Rs.
Rs Rs.
)Depreciation A/c Dr. 200
To Suspense A/c 200
[Being omission of posting to depreciation
account, now rectified]
i) Suspense A/c Dr. 54
To Rajesh A/c 54
[Being wrong posting to Rajesh A/c
now corrected]
(ii) Sales A/c Dr. 90
To Suspense A/c 90
[Being wrong posting to Sales A/c
now rectified]
(iv) Machinery A/c Dr. 4,000
To Purchases A/c 4,000
[Being wrong record of purchases
now corrected]
(v) Suspense A/c Dr. 1,454
To Madan Alc 1,454
(Being rectifying entry made for wrong posting]
(vi)| Sales Returns A/c Dr. 100
00
To Suspense Alc
Being under casting of sales returns now rectified]
 4.21
Rectification of Erors
Suspense Account
Rs.
Rs.
By Balance b/d 1,18
To Rajesh A/c 54 200
By Depreciation Alc
To Madan A/c 1,454 90
By Sales Alc
100
Returns A/c
By Sales
1,508
1,508

Effect on Gross Profit and Net Profit

Gross proft Net Profit

Entries
Rs. Rs.
200
(i) X
(ii) 90
(ii) -90
+4,000 +4,000
(iv) x
(v) 100
- 100
(vi)
3,810 3,610
will increase by Rs. 3,810
The effect of above rectifying entries is that gross profit
and net profit will increased by Rs. 3,610.
Rectification of errors during the Subsequent Accounting
year

Illustration 15
finds that he is out by Rs. 280. Being
Mr. Madan while balancing his books
he places the difference to a newly opened
required to prepare the final accounts
account which he carries forward
to the next year. In the next year, the
suspense
following mistakes were discovered.
Mr. Mani amounting to Rs. 50 had been posted
to
(a) Goods bought from
the credit of his account as Rs. 550.
returned by the bank had
(b) A dishonoured bill receivable for Rs. 2,000
Bills Receivable account.
been credited to the bank account and debited to
had been posted to the
(c) An item of Rs. 100 entered in sales returns Book
debit of the customer who returned the goods.
entered
(d) Sundry items of furniture sold amounting to Rs. 2,600 had been
in sales day book.
(e) Discount amounting to Rs. 20 from a creditor had been duly entered in
his account but not posted to discount account.
Pass the journal entries with proper narration necessary for rectifying the
above mistakes and prepare suspense account.
C.A.IL.B. Feb.1992]
4.22
Financi
Solution: Books of Madan
Rectifying Journal Entries counting
Erros Particulars LF
Debit
(a) Mani Alc Rs Crediu
To Suspense A/c
Dr.
S00 Rs.
Being goods purchased from Mani
for Rs. 50 posted to credit of his account S00
as Rs. 550, now
rectified]
(b) Debtor's A/c
Dr.
To Bills Receivable A/c 2,000
[Being bill receivable returned by bank
dishonoured debited to Bills Receivable 2,000
account, now rectified]
(c) Suspense Alc
To Customer's A/c
Dr 200
[Being goods returned debited to the 200
customer's Account now rectified]
(d)| Profit& Loss Adjustment Ac Dr.
To Fumiture A/c 2,600
[Being furniture sold passed through 2,600
the sales day book now
rectified)
(e) Suspense Alc Dr.
To Profit & Loss 20
Adjustment A/c 20
[Being discount received not credited to
discount account, now rectified]
Suspense Account
Rs.
To Balance b/d Rs.
280 By Mani Ac 500
To Customer's A/c 200
To Profit & Loss Adjustment
A/d 20
S00
S00
llustration 16
A
book-keeper while balancing his books finds that he is out with an excess
of Rs. 91.80. Being required to
prepare the final accounts, he places the difference
to a newly opened
Suspense Account which he carries forward to the next year.
In the next year, the mistakes were discovered as follows:
Adishonoured cheque for Rs. 200 returned by the firm's bank had
been credited to the bank account and debited to general expenses
account.

Sundry items of plant sold amounting to Rs. 260 had been entered
in the sales day book.
(i) Legal expenses Rs. 200 paid to Mr. Ganesh debited to his persona
account.