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Rectification of Errors in the Next Accounting Year


If the errors committed during an accounting year could not be located and rectified before the finalisation of financial statements, suspense account cannot be closed and its balance will be carried forward to the next accounting period. In this case, profit and loss adjustment account is debited or credited in place of accounts of expenses/losses and incomes/ gains in order to avoid impact on the income statement of next accounting period.

Guiding Principles of Rectification of Errors

  1. If error is committed in books of original entry then assume all postings are done accordingly.
  2. If error is at the posting stage then presume that recording in the subsidiary books has been correctly done.
  3. If error is in posting to a wrong account (without mentioning side and amount of posting) then think that posting has been done on the right side and with the right amount.
  4. If posting is done to a correct account but with wrong amount (without mentioning side of posting) then assume that posting has been done on the correct side.
  5. If error is done on posting to a wrong account on the wrong sides (without mentioning amount of posting) then assume that posting has been done with the amount as per the original recording of the transaction.
  6. If error is of posting to a wrong account with wrong amount (without mentioning the side of posting) then assume that posting has been done on the right side.
  7. If posting is done to a correct account on the wrong sides (without mentioning amount of posting) then assume that posting has been done with correct amount as per original recording.
  8. Any error in posting of individual transactions in subsidiaries books relates to individual account only, the sales account, purchase account, sales return account or purchases return account are not involved.
  9. If a transaction is recorded in cash book, then the error in posting relates to the other affected account, not to cash account/bank account
  10. If a transaction is recorded through journal proper, then the phrase 'transaction was not posted' indicates error in both the accounts involved, unless stated otherwise.
  11. Error in casting of subsidiary books will affect only that account where total of the particular book is posted leaving the individual personal accounts unaffected.
Example:
Rectify the following errors:

Credit purchases from Raghu Rs. 20,000
  1. Were not recorded.
  2. Were recorded as Rs. 10,000.
  3. Were recorded as Rs. 25,000.
  4. Were not posted to his account.
  5. Were posted to his account as Rs. 2,000.
  6. Were posted to Reghav's account.
  7. Were posted to the debit of Raghu's account.
  8. Were posted to the debit of Raghav.
  9. Were recorded through sales book.
Solution
Purchases A/c                         Dr. 20,000  
To Raghu's A/c   20,000
(Credit purchases from Raghu omitted to be recorded, now corrected)
Purchases A/c                                                                           Dr. 10,000  
To Raghu's A/c   10,000
(Credit purchases from Raghu recorded as Rs. 10,000 instead of Rs 20,000, now corrected)
  1.  
Raghu's A/c                Dr. 5,000  
To Purchases A/c   5,000
(Credit purchases from Raghu recorded as Rs. 25,000 instead of Rs. 20,000).
  1.  
Suspense A/c                     Dr. 20,000  
To Raghu's A/c   20,000
(Credit purchases from Raghu not posted to his account now corrected).
  1.  
Suspense A/c                     Dr. 18,000  
To Raghu's A/c   18,000
(Credit purchases from Raghu Rs. 20,000 posted to his account as Rs. 2,000)
  1.  
Raghav's A/c                     Dr. 20,000  
To Raghu's A/c   20,000
(Credit purchases from Raghu wrongly credited to Raghav, now corrected)
  1.  
Suspense A/c                    Dr. 40,000  
To Raghu's A/c   40,000
(Credit purchases from Raghu Rs. 20,000 wrongly posted to the debit ofhis account, now corrected).
  1.  
Suspense A/c                    Dr. 40,000  
To Raghav's A/c   20,000
To Raghu's A/c   20,000
(Credited purchases from Raghu Rs. 20,000 wrongly debited to Raghav, now corrected).
Sales A/c                          Dr. 20,000  
Purchases A/c                  Dr. 20,000  
To Raghu's A/c   40,000
(Credit purchases from Raghu wrongly recorded through sales book, now corrected).




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