Meaning of Rectification of Error
To revise a mistake and make amends for it is known as “Rectification of Errors”. Rectification of Errors is basically of two types. One of the most common types of errors are committed on both sides of an entry. This does not influence the trial balance and can be rectified by making a journal entry.
These mistakes can occur while posting the journal entries to the ledger accounts, classifying these accounts, and carrying the balance forward, etc. We will learn in-depth about the types of these errors in our following section.
Types of Rectification of Errors
Errors of omission: These errors occur in cases like when the entire transaction has been omitted from the books of accounts. From the word ‘omitted’ this error got the name ‘Errors of Omission’. This normally happens when the transaction is not recorded in the books of the original entry.
Errors of commission: These errors happen due to any wrong committed by the accountant. Again, from the word ‘commission’ the error got its name as ‘Errors of Commission’. This might happen due to the wrong balances in an account, wrong posting of other accounts, the wrong carryforwards, wrong totaling, etc.
Errors of principle: Errors of principle are committed in those cases where a distinction between the revenue and the capital item is not differentiated. This is the error of principle when the accountant denies accepting the principle of common accounting practices.
Compensating errors: As indicated by the name, compensating errors are those errors which naturally compensate each other.
Errors of omission: These errors occur in cases like when the entire transaction has been omitted from the books of accounts. From the word ‘omitted’ this error got the name ‘Errors of Omission’. This normally happens when the transaction is not recorded in the books of the original entry.
Errors of commission: These errors happen due to any wrong committed by the accountant. Again, from the word ‘commission’ the error got its name as ‘Errors of Commission’. This might happen due to the wrong balances in an account, wrong posting of other accounts, the wrong carryforwards, wrong totaling, etc.
Errors of principle: Errors of principle are committed in those cases where a distinction between the revenue and the capital item is not differentiated. This is the error of principle when the accountant denies accepting the principle of common accounting practices.
Compensating errors: As indicated by the name, compensating errors are those errors which naturally compensate each other.
Trial Balance and Rectification of Errors
In case of an untallied trial balance, we know that at least one error has occurred.
The error or the errors have occurred at one of those stages in the accounting process, while:
totaling the subsidiary books
posting the journal entries in their respective ledger
calculating its account balances
posting the account balances to the trial balance
at the time of totaling the trial balance columns.
This is to be noted that the accounting accuracy is not ensured, although the totals of debit and credit balances are equal as these errors do not affect the equality of the debits and credits.
CA Foundation Rectification of Errors Solutions
Rectification of Errors is an important study for the students willing to appear for the CA Foundation level exams. A replica of its question is only to give you an idea about the type of questions asked to form this chapter. The students are requested to join the Vedantu live online classes for more such content.
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Rectification of Errors after Preparing Final Accounts
After preparing the Final Accounts, the nominal account must not be rectified through the concerned nominal accounts. While the profits which are disclosed in the previous year differ from the genuine profits which are stated before. Therefore, those types of errors are rectified through the Profit and Loss Adjustment Account.
The students must remember that only the rectifying entries are made through the Profit and Loss Adjustment Account which are normally related to the items of the Trading and Profit and Loss Account. Similarly, with the Rectification of Errors, the balance of the new Profit and Loss Adjustment Account is transferred to the Capital Account.
Rectification of Errors Suspense Account
For the one-sided errors in the books, the trial balance refuses totally, then an accountant puts the difference between the debit and credit side of the trial balance on the shorter side as the Suspense A/c. After locating and rectifying the errors, the balance in the Suspense A/c reduces and consequently ends up becoming zero. Thus, the Suspense A/C cannot be categorized. This is a temporary account that can have a debit or credit balance depending upon the situation.
When an accountant uses the Suspense A/c to rectify the one-sided errors, he needs to follow the following steps:
Identify the account with the error.
Ascertaining the excess debit or credit.
In case of a shorter debit or an excess credit in an account, the concerned account is thus debited. In case of short credit or an excess debit in an account, we need to credit the similar affected account.
Then pass the necessary journal entry by debiting or crediting the Suspense A/c.
More about Rectification of Errors
Rectification of Errors is defined as the revising of mistakes in the entries. The errors can occur through various things like - posting entries to ledger accounts, classifying accounts, carrying balance forward, etc.
On the basis of Rectification of Errors, they can be classified into the following two broad categories:
Errors influencing the trial balance
Errors that influence the trial balance
Rectification of Errors Not Influencing the Trial Balance
Errors that do not influence the trial balance include errors that involve errors on both sides of debit and credit and can be corrected by passing a journal entry.
These errors affect two or more than two accounts simultaneously and are therefore known as two-sided errors. These errors can occur both on the debit and credit side of the account and need to be rectified by passing a journal entry to correct the debit and credit.
By reversing the impact of the wrong entry on the debit and credit side and then restoring the correct debit and credit entry, the errors can easily be rectified.
If there is excess credit or shortage in debit, then debiting of the concerned account is done, similarly if there is a shortage of credit and excess of debit, then the concerned account should be credited.
Example
Question: Credit sales to Amit of ₹ 15,000 were not recorded in the sales book. Rectify the error.
Solution:
The rectification of the error is defined as :
Amit 's A/c Dr. 15000
To Sales A/c 15000
(Being credit sales to Amit recorded correctly)
Rectification of Errors Influencing the Trial Balance
Errors that affect the trial balance occur on any one side of the trial balance and such errors can only be rectified or corrected by passing a journal entry along with the opening of a suspense account.
These errors are known as one sided errors as only one side of the account (either debit or credit) is affected by these errors. These errors can be simply rectified by adding a note in the account or by passing a journal entry by creating a Suspense account.
The process of rectification is as follows:
Identifying the account having the error.
Determination of the shortage or excess in the account.
If there is an excess credit and shortage in debit, then the difference should be debited from the account with the difference amount as determined earlier..
If the difference is found due to excess debit and shortage of credit, then credit the account with the difference.
At last, the rectification is completed by debiting or crediting the suspense account.
Example
Question: Depreciation written off on machinery ₹8000 not recorded in Machinery account. Rectify the error.
Solution:
Suspense A/c Dr. 8000
To Machinery A/c 8000
FAQs on Types of Rectification of Errors in Accounting
1. What are the four types of errors in accounting?
In accounting, recognizing the four main types of errors is essential for accurate financial records. These errors can affect trial balances and lead to inaccurate reporting. The primary types are:
- Errors of Omission: Transactions completely or partially left out from the books.
- Errors of Commission: Entries made in the wrong account or with incorrect amounts.
- Errors of Principle: Violating accounting principles by classifying items incorrectly.
- Compensating Errors: Two or more errors that offset each other, so the trial balance still agrees.
2. What is an example of rectification of errors?
Rectification of errors involves correcting mistakes found in accounting books after their initial entry. For example, suppose wages paid of $1,000 were wrongly debited to the Furniture Account instead of the Wages Account. The rectification entry would be to debit the Wages Account and credit the Furniture Account by $1,000. This process ensures that the transaction reflects in the correct ledger accounts and financial statements. By performing such targeted corrections, accountants maintain the accuracy and reliability of all financial records.
3. What are five types of errors?
Apart from the common four, accounting also recognizes a fifth type of error that impacts financial statements. The five types of errors are:
- Error of Omission
- Error of Commission
- Error of Principle
- Compensating Error
- Error of Duplication—the same transaction is recorded more than once.
4. What are examples of rectification?
Rectification examples demonstrate how specific errors are corrected in accounting records. For instance, if cash received from a debtor was incorrectly posted to a creditor’s account, the error can be rectified by debiting the creditor’s account and crediting the debtor’s account for the same amount. Another example is when sales worth $500 are omitted; the rectification would involve debiting the debtor’s account and crediting the Sales Account. These corrections ensure accurate representation of transactions in financial statements and prevent misstatements in accounts.
5. What are the main types of rectification of errors?
Rectification of errors can be classified mainly by when and how correction occurs in accounting books. The principal types of rectification include:
- Rectification before trial balance: Corrections are made simply by adjusting the concerned accounts.
- Rectification after trial balance but before final accounts: Journal entries are passed to correct errors affecting only one side or both sides of accounts.
- Rectification after final accounts: Corrections involve adjustments in the subsequent year’s books to fix errors discovered later.
6. How do you rectify errors located before the preparation of trial balance?
Errors found before preparing the trial balance are rectified by simply correcting the amounts in the affected ledger accounts. As these errors typically affect only one account, no formal journal entry is needed. For instance, if a purchase of $200 is entirely omitted, you just enter it into the appropriate purchase and supplier accounts. This approach ensures that the trial balance reflects all correct balances and helps avoid complications in final accounts. Early detection simplifies the rectification process and maintains bookkeeping accuracy.
7. What is the process of rectification after the trial balance has been prepared?
When errors are found after the trial balance is prepared, they require specific journal entries for rectification. This process ensures that both affected accounts are corrected simultaneously. The typical steps involved are:
- Identify the accounts involved in the original error.
- Pass a rectification journal entry, debiting and crediting the right accounts.
- Post the entry to the corresponding ledger accounts.
8. What is one-sided versus two-sided rectification of errors?
Rectification can be categorized as one-sided or two-sided based on the nature of the error. One-sided errors affect only a single account, such as an item entered only in the debit column. Correction involves adjusting that specific account. In contrast, two-sided errors impact both debit and credit sides, requiring a journal entry to fix both accounts. Understanding these types is important for selecting the proper correction method and ensuring complete accuracy in rectification of errors.
9. Can errors be rectified in the next accounting year?
Yes, if errors are found after books are closed, rectification takes place in the next accounting year. Such corrections are made using opening entries or adjustment entries and may involve creating a Suspense Account if the trial balance is affected. This ensures the financial statements of the new year accurately reflect corrections from the previous period, preserving the accuracy and integrity of long-term financial records.
10. What is the role of a Suspense Account in rectification of errors?
A Suspense Account temporarily records the difference in the trial balance arising from one-sided errors. It acts as a holding account until the errors are found and rectified. When the mistakes are corrected, corresponding entries are passed to transfer the amount from the Suspense Account to the proper accounts. Using a Suspense Account is a key part of error rectification when trial balances do not initially agree, supporting the maintenance of balanced accounts.
11. Why is rectification of errors important in accounting?
Rectification of errors is crucial for ensuring the accuracy of financial statements and maintaining stakeholder trust. Uncorrected errors can misstate income, assets, or liabilities. Effective rectification:
- Protects a business from making decisions based on faulty data
- Ensures compliance with accounting standards
- Prevents complications with auditors and tax authorities
12. How are errors of principle rectified?
Errors of principle arise when accounting principles are violated—such as treating a revenue item as capital, or vice versa. To rectify these, the incorrect account is adjusted, and the correct one updated via a journal entry. For example, if repairs are wrongly debited to Building Account, the rectification would be to debit Repairs and credit Building for the over-amount. This ensures all entries comply with correct accounting treatment and financial statements are accurate.
