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Accountancy Class 11 – Rectifying Journal Entries

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1. Its 540 received from M. Mehta was posted to the debit of his account. 

The amount of M. Mehta should have been credited by P.s 540. It has been debited. In order to set the matters right, it is necessary to credit his account by Ps 1,080 (i.e., to cancel unnecessary debit of P.s 540 and to give him credit of Ps 540).

2. Rs 100 being Purchases Returns was posted to the debit of Purchases Account.

The Purchases Returns Account should have been credited by a sum of P.s 100 on account of return of the goods. It has not been at all credited. It has, therefore, been credited by Es 100. The Purchases Account should not have been at all debited. It has, therefore, been credited by P.s 100. Suspense Account has been debited by Rs 200, since no other account is available and it must have been credited earlier on account of these errors.

3. Discount Rs 200 received, entered in the cash book was not posted to the Ledger. 

The amount of discount received is credited to the Discount Account. It has not been done, Discount Account, has therefore, been credited now, Suspense Account has been debited because it must have been credited earlier on account of this error.

4. Its 574 paid for repairs to motor-car was debited to the motor-car account as Rs 574.

Repairs to motorcar is a revenue expenditure. It should has been debited 10 the Repairs Account. 11 has not been done. The Repairs Account has, therefore, been debited by P.s 574. Motor Car Account has been unnecessarily debited by Rs 174. It should, therefore, be credited by this amount. The difference has been put to the Suspense Account.  [Read more…]

Accountancy Class 11 – Rectifying Accounting Entries

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RECTIFYING ACCOUNTING ENTRIES 

The errors committed in the books of accounts when located out, have to be corrected. However, corrections in the books of accounts should he done by passing proper rectifying entries and not by culling or erasing figures. Such entries, as explained earlier, are passed in the General Journal or Journal Proper. The passing of proper rectifying entries is being explained below with suitable examples.

Example 1, The Sales Book overcast by Ps 50.

Over-casting of Sales Book will result in over-credit to Sales Account by Ps 50 since the total of the Sales Book is posted to the credit of the Sales Account at the end of a period. There can be two situation in such a case:

(i) The error might have been located out by the accountant before transferring the difference to the Suspense Account In such a case, there is mistake only in one account, i.e., the Sales Account. It has been credited more by Ps 50. The error can be rectified if the Sales Account is debited by Ps 50. Thus, the following will be the rectifying entry in the Journal Propet

No account is to be credited since the error affects only one account.

(ii) The error might have been located out by the accountant after transferring the difference in the Trial Balance to a Suspense Account In such a case two accounts are involved: (a) Sales Account, and (b) Suspense Account. Since Sales Account had been credited more by Ps 50 the credit side of the Thai Balance must have been more than the debit side of the Trial Balance. The Suspense Account should, therefore, have been put on the debit side of the Thai Balance in order to balance the two sides

The Sales Account has been &edited more by Ps 50. In order to rectify the error, the Sales Account should therefore be debited by Ps 50. Suspense Account has been debited because of this mistake which has now been found out. It should therefore, be closed by giving credit to it.

Accountancy Class 11 – Errors which affect the agreement of the Trial Balance.

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Errors which affect the agreement of the Trial Balance. Such errors are easy to be located since they are caught at an early stage. As soon as the Trial Balance does not tally, the accountant can proceed to find out these errors. The procedure to be followed for location of such errors can be put as follows:

  • The difference of the two sides of the Trial Balance should be found out The amount should then be divided by two. The two sides of the Trial Balanc2 should then be checked to find out if there is an amount equal to that figure. It is possible that the amount may have been placed to a wrong side resulting in difference in the totals of the Trial Balance. For example, if the total of the debit side of the Trial Balance is Ps 450 more than the credit side of the Thal Balance, Rs 450 should be divided by 2, thus giving a figure of 225. The debit side should then be checked to find out if there is an amount of Rs 225 appearing on that side. If it is so, it should be seen whether the amount has been correctly put to that side or it should have gone to the credit side.
  • Since, cash and bank account are not maintained usually in the Ledger, it will be also advisable to check whether the balances of the cash and bank accounts have been taken in the Trial Balance or not.
  • The schedules of sundry debtors and sundry creditors should be checked to find qut whether all balances of debtors and creditors have been included in these schedules or not.
  • The totals of the subsidiary books such as the Sales Book, Purchases Book should be checked and it should be seen whether posting has been done from these two books correctly to the Sales, Purchases or other accounts as the case might be.
  • If the error is still not traceable, check thoroughly the books of original entry and their posting into the Ledger and finally the balancing of different accounts.

 

 

Accountancy Class 11 – Types of Rectification of Errors

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1. Errors of omission. These errors are incurred in those cases when a transaction

is completely omitted from the books of accounts. It happen: when a transaction is not recorded in the books of the original entry (i.e., various journals). For example, if a purchase of goods on credit from Shri Ram Lal has not at all been recorded in the books of accounts, such an error will be teimed as an error of omission. Since, there has been neither a debit entry nor a credit entry, therefore, the two sides of the TYial Balance will not be at all affected on account of this error. Such errors, therefore, cannot be located out very easily. They come to the notice of the businessman when statement of accounts are received from or sent to creditors or debtors as the case might be.

2. Errors of commission. Such errors include errors on account of wrong balancing of an account, wrong posting, wrong carry forwards, wrong totalling, etc. For example, if a sum of Ps 50 received from Mukesh is credited to his account as Rs 500, this is an error of commission. Similarly, if the total of the debit side of an account is carded forward from one page to another and the mistake is committed in such carry forward (e.g. total of Rs 996 is carried forwards as Rs 699) such an error is an error of commission. Errors of commission affect the agreement of the Trial Balance and, therefore, their location is easier.

3. Errors of principle. Errors of principle arc committed in those cases where a proper distinction between revenue and capital items is not made. i.e., a capital expenditure is taken as a revenue expenditure or vice-versa. Similarly, a capital receipt may have been taken as 1 revenue receipt or vice- versa. For example, a sale of old furniture of Rs 500 should be credited to the furniture account, but if it is credited to the Sales Account, it will be termed as an error of principle. Sale of old furniture is a capital receipt. If it is credited to Sales Account, it has been taken as a revenue receipt. Such errors by themselves do not affect the agreement of the Trial Balance. Therefore, they also are difficult to be located.

4. Compensating errors. As the name indicates, compensating errors are those errors which compensate each other. For example, if a sale of Rs 500 to Ram is debited as only of Ps 50 to his account, while a sale of Rs 50 to Shyam is debited as of Rs 500 to his account, it is a compensating error. These errors also do not affect the agreement of the ThaI Balance and, therefore, their location is also difficult.