1. Errors can occur during recording transactions, posting transactions, or both. Errors that affect only one side of a transaction or account are easier to rectify than two-sided errors. 2. Corrections are made by drawing lines through incorrect entries and inserting the right information, or by making correcting journal entries. Suspense accounts are used when trial balances do not match due to unidentified errors. 3. The timing of corrections depends on whether errors are identified before or after key financial statements are prepared. Individual accounts can be corrected before statements, while after requires netting corrections through profit/loss or balance sheet accounts.

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

3. Errors that will not cause the
trial balance to be unequal:
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.

4. 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.

5. Correction
of Errors
Error Correction Procedure
1. Journal entry is incorrect
2. correct Draw a line through the error
but not posted.
posted incorrectly. and insert correctpost or
posted error and title
amount.
correctly.

6. Correction
of Errors
Error Correction Procedure
3. Journal entry is incorrect Journalize and post a
and posted correcting entry.

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

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

9. 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.

10. 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)

11. 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.

12. 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 ie 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.

13. 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.

14. 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.

15. 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

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

17. Rectification of error-Rule-6
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?

18. 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.18

19. Exercise-1
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)

20. Thank you very much