This document discusses the rectification of accounting errors. It provides guidance on when errors occur, how to identify them, and the procedures for correcting them. The key points are: 1. Errors can occur when transactions are not recorded, recorded incorrectly, or posted to the wrong account. 2. Errors identified before the trial balance should be corrected by entering offsetting journal entries. Errors after should be corrected by adjusting the balance sheet accounts or profit and loss. 3. Suspense accounts are used to correct one-sided errors or when the trial balance is out of balance. The suspense account fulfills the double-entry requirement. 4. Omitted transactions require new journal entries to record both

1. RECTIFICATION
OF
ERROR

2. Rectification of Errors
Before preparing
Trial Balance
After trial balance
But before Trading,
P/L and Balance sheet
After preparing
Trading and P/L
and Balance sheet
Hit the individual
account
Hit profit or reserve or
Capital{do not bother
about individual/nature Of expenditure}
And hit the Balance sheet Only net balance
if it affects Balance sheet

3. 1. Failure to record a transaction or to post a
transaction.
2. Recording the same erroneous amount for
both the debit and the credit parts of a
transaction.
3. Recording the same transaction more than
once.
4. Posting a part of a transaction correctly as a
debit or credit but to the wrong account.
Errors that will not cause the
trial balance to be unequal:

4. Error Correction Procedure
1. Journal entry is incorrect Draw a line through the error
but not posted. and insert correct title or
amount.
Error Correction Procedure
Correction of Errors
Error Correction Procedure
1. Journal entry is incorrect Draw a line through the error
but not posted. and insert correct title or
amount.
Error Correction Procedure
2. Journal entry is correct Draw a line through the
but posted incorrectly. posted error and post correctly.
Error Correction ProcedureError Correction Procedure
3. Journal entry is incorrect Journalize and post a
and posted correcting entry.

5. What would be the necessary
correcting entry?
Journal – As recorded and posted
Correcting Errors – An Example
On May 5, a purchase of office equipment on
account was incorrectly journalized and posted
as shown.
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500

6. Date Description Debit Credit
May 5 Office Equipment 12,500
Supplies 12,500
Journal – As recorded and posted
Correcting Errors – An Example
On May 5, a purchase of office equipment on
account was incorrectly journalized and posted
as shown.
Date Description Debit Credit
May 5 Supplies 12,500
Accounts Payable 12,500

7. Basic rules for rectification-1
• If words used ‘account’-means error only with
respect to that individual account.
Example: wages paid Rs 50,000 not entered into
wages account.
Here wages paid might have affected cash also, but
the statement says that it is not entered into wages
account only. It does not mention about cash
account. Therefore we assume that cash account
had been entered correctly. Therefore rectify wages
account only. It is one side error or one account
error.

8. Basic rules for rectification-2
• Do not make too many assumptions.
• Example: wages paid to install a machinery is
entered into wages account.
Here you find wages account is treated as a revenue
expenditure(Refer to the notes earlier) but it is a
capital expenditure. “Any expenditure incurred
before the asset is put into use to be capitalised”.
What about cash account?
We assume that cash account would have been
correctly entered. (Continue in the next slide)

9. You might ask which side of wage account had
been entered, whether debit or credit?
Normal assumption is that wages always
entered in the debit side(nominal rule).
Do not assume, had been entered into credit side
of wages account what would have happened-
It is unnecessary assumption(too much in your
assumption)
Ask question: whether one/ two accounts is/are
affected? Here wages (wrongly entered) but
you should enter in the Building account now.
This is a normal assumption.

10. How do you rectify wages?
• Building account to be debited Rs.50,000
• Wages account to be credited Rs.50000
• To remove wages from the account put it in the
opposite side of that account.
• Every account is born in one side i.e debit or credit.
All assets and expenditure accounts are born in the
debit side. If you want to kill it put it on the credit
side.
• In the same way liabilities and income accounts are
born in the credit side. If you want to kill it put it on
the debit side.

11. Rectification rule-3
• Error to be rectified before the preparation of trial
balance or after trial balance or after the
preparation of Balance sheet.
• Before preparation of Balance sheet-Hit the
individual account
• After preparation on trading, profit and loss
account and Balance sheet- reduce/increase profit
if it is an expense and if it affects asset/liability
increase/decrease the net amount only.

12. Rectification of errors-Rule-4
• If one side error(one account) to fulfill the double
entry book keeping we open suspense account
provided, trial balance is already prepared.
• Example:- Salary paid to Ranganath not entered into
salary account by Rs.40,000
• The mistake is only in salary debit side because salary
appears on the debit side. Cash account is correct(do
not assume too much as I have stated earlier).
• Rectification entry:
Salary a/c debit Rs.40,000
Suspense a/c credit Rs.40,000.

13. Rectification of error-Rule 5
• Suspense account: Meaning
When trial balance does not tally(debit is not
equal to credit) in order to close the trial
balance we open entirely a new account on
the side of deficit. Such account is known as
suspense account.
Example:-next page

14. Example for suspense account
• Trial balance: Debit credit
• Purchases 5000 -
• Wages 3000 -
• Sales - 10,000
• Building 4000
• Suspense account ??? 2000(CR)
Note: here suspense account is a credit balance as trial is not an account
Since debit side of trial balance is more
than credit side, suspense account
is not a credit balance

15. Omitted from book(s )means both debit and credit of such
transactions are omitted.
Account means –omitted to enter into that specific
account only(normally one side error)
Example: purchases from Mr.Amal not entered in the
purchase books Rs. 50,000
Here this transaction is completely omitted as it is given
the word books.
To rectify pass a fresh journal entry:
JE: debit purchase a/c Rs.50,000
Credit Mr.Amal a/c Rs.50,000
Suppose it is stated that not entered into the purchase
account how do you rectify?
Rectification of error-Rule-6

16. Here, the mistake is only in the purchase account. There
is no mistake in Mr. Amal’s account
Rectified entry is:
Purchase a/c debit Rs.50,000(real rule)
Suspense a/c credit Rs.50,000
(fulfill double entry)
Note: normal assumption is that purchase is always
debit.
If it is sales it is always credit.16

17. Rupees 1000 spent for repairs of building has been
posted to building account.
Identify the mistake:
1. Repairs 2. Building.
Repairs do not increase the capacity of building but to
maintain the building. Therefore it is a revenue
expenditure but treated as capital expenditure.
Rectification : add to repairs and remove from building
Rectification entry: repairs a/c debit Rs.1000(real rule)
Building a/c credit Rs.1000
(to remove from building a/c)
Exercise 1

18. Thank You !!