The accountants prepare the trial balance to verify the correctness of the accounts. If the total of the debit balances does not agree with the total of the credit balances, it is a clear indication that certain errors have been made when recording the transactions in the original entry books or subsidiary books. It is our maximum duty to locate these errors and correct them, only then should we proceed to the preparation of the final accounts. We also know that the trial balance does not reveal all types of errors, since some of the errors do not affect the total trial balance. Therefore, these cannot be located with the help of the trial balance. An accountant must invest his energy in locating both types of errors and correcting them before preparing the trading, profit and loss account and balance sheet. Because if these are prepared before the rectification, they will not give us the correct result and the profit and loss they reveal will not be the real profit or loss.

All accounting procedure errors can be classified as follows:

1. Errors of Principle

When a transaction is recorded against the fundamental principles of accounting, it is an error of principle. For example, whether revenue expenses are treated as capital expenses or vice versa.

2. Administrative errors

These errors can again be subdivided as follows:

(i) Errors of omission

When a transaction is not fully or partially recorded in the books, it is an error of omission. It may be with respect to the failure to record a transaction in the original entry books or with respect to the failure to record a transaction from the original entry books to the account in question in the general ledger.

(ii) Commission errors

When an entry is incorrectly recorded, whether the posting, calculation, casting, or adjustment is wholly or partially incorrect. Some of the commission errors affect the trial balance while others do not. Errors affecting the trial balance can be revealed by preparing a trial balance.

(iii) Compensation for errors

Sometimes an error is offset by another error in such a way that it is not revealed in the trial balance. These errors are called compensation errors.

From the point of view of correcting errors, they can be divided into two groups:

(a) Errors affecting a single account, and

(b) Errors affecting two or more accounts.

Errors affecting an account

The errors that affect can be:

(a) Launch errors;

(b) posting error;

(c) carry forward;

(d) balance; Y

(e) omission of trial balance.

Such errors must first be located and rectified. These are rectified with the help of a journal entry or by giving an explanatory note on the account in question.

Correction

Accounting error correction stages

All types of errors in the accounts can be corrected in two stages:

(i) before the preparation of the final accounts; Y

(ii) after the preparation of the final accounts.

Errors corrected within the accounting year

The proper method of correcting an error is to post a journal entry in such a way that it corrects the error that has been made and also gives effect to the entry that should have been posted. But while the errors are corrected before the preparation of the final accounts, in certain cases the correction cannot be made with the help of journal entries because the errors have been such. Normally, the rectification procedure, if any, before the preparation of the final accounts is as follows:

(a) Correction of errors affecting one side of an account Such errors do not allow the trial balance to agree since they affect only one side of an account, so they cannot be corrected with the help of a journal entry, if requires correction before the preparation of final accounts. Therefore, the required amount is placed on the debit or credit side of the account in question, as the case may be. For example:

(i) Sales book worth Rs 500 in the month of January. The error is only in the sales account, to correct the sales account, we must record on the credit side of the sales account ‘For understatement of’. sales book for the month of January Rs. 500″. Explanation: Since the sales ledger was understated by Rs. 500, it means that all the accounts except the sales account are correct, only the credit balance of the sales account is less than Rs. 500. So it is have credited Rs 500 to the sales account.

(ii) Discount allowed to Marshall Rs 50, not posted to the discount account. It means that the amount of Rs 50 that should have been debited to the discount account has not been debited, so the debit side of the discount account has been reduced by the same amount. We should debit 50 rupees to the discount account now which was skipped earlier and the discount account will be corrected.

(ii) Goods sold to X incorrectly debited from sales account. This error affects only the sales account, as the amount that should have been posted on the credit side has been incorrectly placed on the debit side of the same account. To rectify this, we must place twice the amount of the transaction on the credit side of the sales account by writing “For sales to X previously incorrectly debited.”

(iv) Amount of Rs 500 paid to Y, not debited from his personal account. This error of effecting Y’s personal account only and his debit side is less than Rs 500 due to failure to account for the amount paid. Now we will write on your debtor side. “In cash (omitted to publish) Rs. 500.

Correction of errors that affect two faces of two or more accounts

As these errors affect two or more accounts, the rectification of such errors, if done prior to the preparation of the final accounts, can often be done with the aid of a journal entry. By correcting these errors, the amount is debited to one account or accounts, while a similar amount is credited to another account or accounts.

Correction of errors in the next accounting period

As stated above, it is advisable to locate and correct errors before preparing the final accounts for the year. But in certain cases, when after considerable searching the accountant is unable to locate the errors and is in a hurry to prepare the final accounts of the business for filing the sales or income tax return, he transfers the amount of the trial balance difference to a newly opened ‘Transitional Account’. In the next accounting period, as errors are found, they are corrected with reference to the suspense account. When all errors are discovered and rectified, the suspense account will be automatically closed. We must not forget here that only those errors that affect the trial balance totals can be corrected with the help of the suspense account. Errors that do not affect the trial balance cannot be corrected with the help of the suspense account. For example, if it is determined that the trial balance debit total was less than Rs 500 for the reason that Wilson’s account was not debited with Rs 500, the following rectifying entry is required to be passed.

Difference in trial balance

The trial balance is affected only by errors that are rectified with the help of the suspense account. Therefore, to calculate the difference in the transitory account, a table will be created. If the suspense account is debited on the correcting entry, the amount will be placed on the debit side of the table. On the other hand, if the suspense account is credited, the amount will be placed on the credit side of the table. At the end, the balance is calculated and invested in the suspense account. If the credit side exceeds, the difference would be placed on the debit side of the suspense account. Effect of final account errors

1. Errors in the profit and loss account

It is important to point out the effect that an en-or will have on the company’s net income. A point to remember here is that only those accounts that are transferred to the profit and loss account at the time of preparation of the final accounts affect the net profit. It means that only the errors in the nominal accounts and in the assets account will affect the net profit. The error in these accounts will increase or decrease the net profit.

How errors or their rectification affect earnings tracking rules are useful to understand:

(i) If, due to an error in a nominal account, a debit has been made, the profit will decrease or the losses will increase, and when it is corrected, the profits will increase and the losses will decrease. For example, the machinery is reconditioned for Rs 10,000, but the amount is debited from the machinery repair account: this mistake will reduce the profit. On the rectification entry, the amount will be transferred to the machinery account from the machinery repair account, increasing profits.

(il) If due to an error the amount is omitted from recording on the debit side of a nominal account, it results in increased profit or decreased loss. The correction of this error will have an inverse effect, that is, the benefit will be reduced and the losses will be increased. For example, rent paid to the landlord but the amount has been debited from the landlord’s personal account – the profit will increase as rental expenses are reduced. When the error is corrected, we will post the necessary amount to the rental account, which will increase the rental expense and therefore reduce profits.

(ii) Winnings will increase or losses will decrease if a nominal account is incorrectly credited. With the rectification of this error, profits will decrease and losses will increase. For example, the investments were sold and the amount was credited to the sales account. This error will increase profits (or reduce losses) when the same error is rectified, the amount will be transferred from the sales account to the investment account, so the sales will be reduced, resulting in a decrease in sales. gains (or an increase in losses).

(iv) Profit will decrease or losses will increase if an account is omitted from posting on the credit side of a nominal or property account. When they are rectified they will increase profits or reduce losses. For example, commission received is omitted to be posted to the commission credit account. This error will decrease profits (or increase losses) since an income is not credited to the profit and loss account. When the error is corrected, it will have a reverse effect on the profit and loss account, as additional income will be credited to the profit and loss account, so the profit will increase (or the losses will decrease). If by some mistake gains or losses are made, it will have its effect on the capital account as well because the gains are credited and the losses are charged to the capital account and thus the capital will also increase or decrease. Since principal is shown on the liability side of the balance sheet, any errors in the nominal account will also affect the balance sheet. So we can say that an error in the nominal account or in the asset account affects the profit and loss account as well as the balance sheet.

2. Errors that only affect the balance

If an error is made in a real or personal account, it will affect the assets, liabilities, debtors or creditors of the company and, as a result, will have its impact only on the balance sheet. because these items are shown only on the balance sheet and the balance sheet is prepared after the profit and loss account has been prepared. So if there is any error in the cash account, bank account, asset account or liability account, it will only affect the balance sheet.