Rectification of Errors that Affect and Do not Affect Trial Balance

Here we detail about the rectification of errors that affect and do not affect trial balance.

I. Rectification of Errors Not Affecting the Trial Balance (Two Sided Errors):

Errors which do not affect the trial balance are also known as two sided errors. These errors are committed in two or more accounts.

Following are some example of such errors:

(a) Error of complete omission

(b) Wrong recording in the books of original entry

(c) Error of complete omission from posting to the accounts

(d) Errors of posting to the wrong account but on the correct side

(e) Compensating Errors

(f) Errors of principle

These errors are rectified by recording a journal entry in a manner that correct debit and correct credit is given to the respective accounts.

Rectification Process:

Before rectification, one should know the answers to the following:

(i) What has been done?

(ii) What was to be done?

(iii) What action should be taken for rectification?

For rectification of the two sided errors, the following steps may be taken:

Step 1:

Write the wrong entry (i.e., the entry that has actually been passed) in the Working Notes.

Step 2:

Write the correct entry (i.e., the entry which should have been passed) in the Working Notes.

Step 3:

To arrive at Step 2 and to cancel the entry of Step I, pass rectifying entry in the Journal.

II. Errors Which Affect the Trial Balance (One Sided Errors):

Errors which affect the trial balance are also known as one sided errors. These errors are committed in one account only.

Following are some example of such errors:

(a) Error of casting

(b) Error of carrying forward

(c) Error of balancing

(d) Error of posting to the correct account but with the wrong amount

(e) Error of posting to the correct account but wrong side

(f) Error of posting to the wrong side with the wrong amount

(g) Error of omitting to show an account in the trial balance

Rectification Process:

One sided errors may be detected:

(i) Before the preparation of Trial Balance or

(ii) After the preparation of Trial Balance.

Based on the stage at which errors are located, they may be rectified by giving an explanatory note in the affected account or by passing a rectifying entry with Suspense Account.

(i) Rectification before the preparation of Trial Balance:

When one sided error is detected before the preparation of trial balance, no journal entry is required to be passed. At this stage errors can be rectified by giving an explanatory note in the affected account(s).

The following steps may be followed for rectifying these errors:

Step 1:

Examine and identify the account(s) affected by such errors.

Step 2:

In the affected account(s), an explanatory note may be given on the debit or credit side, as the case may be. The affected account(s) are to be debited, if there is short debit or excess credit and credited if there is short credit or excess debit.

Illustration 1. (Rectification of one sided errors before the preparation of trial balance)

Rectify the following errors which were detected before making the Trial Balance.

(i) Purchases Books has been overcast by Rs 650.

(ii) A discount of Rs 100 allowed to Charu has not been posted to his account.

(iii) Returns Inward Book of Rs 2,500 has not been posted to Return Inward Account.

(iv) A payment of Rs 500 as repairs has been debited to repairs account twice.

(v) Goods purchased from Rakesh for Rs 4,600 on credit has been correctly entered in the Purchases Book but it has been debited to his account as Rs 460.

(vi) Returns Outward Book of Rs 3,560 has been posted to Return Outward Account as Rs 560.

 

(ii) Rectification after the preparation of Trial Balance:

When one sided error is detected after the preparation of trial balance, the following steps may be taken:

Step 1:

Examine and identify the account(s) affected by such error.

Step 2:

Calculate the amount of excess debit/credit or short debit/credit in the affected account(s). In this process it may happen that the error has resulted in

(a) Excess debit or short credit in the affected accounts or

(b) Excess credit or short debit in the affected account(s).

Step 3:

To rectify excess debit or short credit in the affected account(s), the affected account(s) should be credited with the amount of excess debit or short credit.

Step 4:

To rectify excess credit or short debit in the affected account(s), the affected account(s) should be debited with the amount of excess credit or short debit.

Step 5:

In Step 3 and Step 4, the rectifying entry should be completed by debiting or crediting the Suspense Account, as the case may be.