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Rectification of Errors Affecting Trial Balance


An error in the books of original entry is discovered before posting to the ledger, may be corrected by crossing out the wrong amount by a single line and writing the correct amount above the struck off amount and putting the initial at the place. Examples of such errors are error of casting; error of carrying forward; error of balancing; error of posting to correct account but with wrong amount; error of posting to the correct account but on the wrong side; posting to the wrong side with the wrong amount; omitting to show an account in the trial balance.

An error in an amount posted to the correct ledger account may also be corrected in a similar way, or by making an additional posting for the difference in amount and giving an explanatory note in the particulars column provided that the trial balance is not prepared. But errors should never be corrected by erasing. Crossing or Erasures reduce the authenticity of accounting records and give an impression that something is being concealed. So it should be done only by noting the correction on the appropriate side for neutralising the effect of the error.

 

Take for example a case where Shyam's account was credited short by Rs. 190. This will be rectified by an additional entry for Rs. 190 on the credit side of his account as follows.

Shyam's Account            
Dr. Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

         

Difference in amount posted short on........

 

190

 

Another example, purchases book was under cast by Rs. 1,000. The effect of this entry is on purchases account (debit side) where the total of purchases book is posted
Purchases Account
Dr. Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

 

Under casting purchases book for the month of.......

 

1,000

     

190

Suspense Account


In spite of best efforts, locating errors is not an easy task and may take sometime. Unless detected and located, errors cannot be corrected. To avoid delay in preparation of financial statements, the amount of difference of the trial balance is temporarily put in an account called” Suspense Account” so as to tally the trial balance by putting the difference on the shorter side. When all errors are located and rectified, the suspense account would close automatically. But incase some balance still remains in the suspense account, due to non location of errors, it will be shown in the balance sheet on the asset side in case of debit balance and on the liabilities side in case of credit balance.

The process of opening of suspense account can be understood with the help of the following example:

Consider the sales book of an organisation.
Sales Book (Journal)

Date

Invoice No.

Name of Customers
(Account to be debited)

L.F.

Amount
Rs.

   

Ashok traders

Bimal service centre

Chopra enterprises

Diwakar and sons

 

20,000

10,000

5,000

15,000

       

50,000


If sales to Diwakar and sons were not posted to his account, ledger will show the following position:
Ashok traders Account
Dr. Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

 

Sales

 

20,000
----------20,000
----------

 

Balance c/d

 

20,000
---------20,000
---------

Bimal Service Centre's Account
Dr. Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

 

Sales

 

 

10,000
---------10,000
---------

 

Balance c/d

 

10,000
----------10,000
----------

Chopra Enterprises Account
Dr. Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

 

Sales

 

5,000
--------5,000
--------

 

Balance c/d

 

5,000
--------5,000
--------

Sales Account
Dr. Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

         

Sundries

 

50,000

 

The trial balance when prepared on the above basis will not tally. Its credit column total will amount to Rs. 50,000 and debit column total to Rs. 35,000. The trial balance would differ with Rs. 15,000. This difference will be temporarily put to suspense account and trial balance will be made to agree in the ledger.

In the above case, difference in trial balance has arisen due to one sided error. (Omission of posting to Diwakar and sons's account). Actually there can be many other such one-sided errors which cause a difference in trial balance. Till the all errors affecting agreement of trial balance are not located it is not possible to rectify them and tally the trial balance in such a situation, is shown in the Suspense account, make the total of debit and credit columns and proceed further with the accounting process.

When the errors are located and are identified, the amounts are transferred from suspense account to the relevant accounts thereby closing the suspense account. Thus, suspense account is not placed in any particular category of accounts and is just a temporary phenomenon.

 

In the process of rectifying one-sided errors using suspense account, the following steps are followed:
  1. Identify the account affected due to error.
  2. Find out the amount of excess or short debit/credit in the affected account.
  3. If the error has resulted in excess debit or short credit in the affected account, credit the account with the amount of excess debit or short credit.
  4. If the error has resulted in excess credit or short debit in the affected account, debit the account with the amount of excess credit or short debit.
  5. Complete the journal entry by debiting or crediting the suspense account as another account affected otherwise.
We will now discuss the process of rectification using suspense account:
  1. Credit sales to Mohan Rs. 10,000 were not posted to his account. This is an error of partial omission committed while posting entries of the sales book.
Wrong effect has been:
Mohan's A/c                     Dr. Nil  
To sales A/c   10,000

Correct effect should have been:
Mohan's A/c                     Dr. 10,000  
To sales A/c   10,000

The rectification entry will be:
Mohan's A/c                     Dr. 10,000  
To suspense A/c   10,000
  1. Credit sales to Mohan Rs. 10,000 were posted to his account as Rs. 7000. This is an error of commission. Mohan's account has been debited with Rs. 7,000 instead of Rs. 10,000 resulting in short debit of Rs. 3,000.
The wrong effect has been:
Mohan's A/c                     Dr. 10,000  
To Sales A/c   10,000

Correct effect should have been:
Mohan's A/c                     Dr. 10,000  
To Sales A/c   10,000

Hence, rectification entry will be:
Mohan's A/c              Dr. 3,000  
To Suspense A/c   3,000
  1. Credit sales to Mohan Rs. 10,000 were posted to his account as Rs. 12,000.
This is an error of commission.

The wrong effect has been:
Mohan's A/c                     Dr. 12,000  
To Sales A/c   10,000

Correct effect should have been:
Mohan's A/c                     Dr. 10,000  
To Sales A/c   10,000

 

The rectification entry will be:
Suspense A/c            Dr. 2,000  
To Mohan's A/c   2,000
  1. Purchases book overcast by Rs. 1,000. Errors in casting of subsidiary books affect only those accounts where totals of the subsidiary books involved are posted. The accounts of individual parties are not affected. Consider the following example.
Purchases (Journal) Book

Date

Invoice
No.

Name of suppliers
(Accounts to be credited)

L.F.

Amount
Rs.

   

Dheru

Chandra Prakash

Sachin

Wrong total

due to over casting

 

8,000

7,000

6,000

21,000

22,000

 

Dheru's Account
Dr.             Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

         

Purchases

 

8,000

 

Chandra Prakash's Account
Dr.             Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

         

Purchases

 

7,000

 

Sachin's Account
Dr.             Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

         

Purchases

 

6,000

 

Purchases Account
Dr.             Cr.

Date

Particulars

J.F.

Amount
Rs.

Date

Particulars

J.F.

Amount
Rs.

 

Sundries

 

22,000

       

 

As you can notice that there is no error in accounts of Dheeru, Chanderprakash and Sachin. Only purchases account has been debited with Rs. 1,000 extra. Hence, rectification entry will be:
Suspense A/c                 Dr. 1,000  
To Purchases A/c   1,000




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