Rectification before the Preparation of Trial Balance

Rectification before the Preparation of Trial Balance

When errors are detected before the preparation of the trial balance, it should be ascertained whether they are one sided errors or two sided errors. According to the nature of errors, different steps are taken for their rectification.

(a) Errors Affecting One Account (One Sided Errors): Errors affecting one account may occur due to the following reasons:

(i) Wrong casting.

(ii) Wrong balancing.

(iii) Wrong posting.

(iv) Wrong carry forward.

(v) Forgetting to show an amount in the trial balance.

For rectification of these type of errors, no journal entry is required to be passed, only the relevant account, in the ledger is to be debited (for short debit or excess credit) or is to be credited (for short credit or excess debit) according to the situation.

While rectifying one sided errors it should be remembered that the double entry aspect of the rectifying entry will not be complete. For example, if P’s account has been debited with Rs.365 for credit sales of Rs.356 correctly recorded in sales book, then the rectifying entry will be Rs. 9 made on the credit side of P’s account only. No account will be debited with this amount of Rs.9.

Illustration :
Rectify the following:

(i) An entry for the goods sold to Madhav for Rs.1,020 was posted to his account as Rs. 1,200.

(ii) Rs. 1,000 being the monthly total of discount allowed to customers was credited to discount account in the ledger.
(iii) Rs. 2,750 received from Sohan was credited to Mohan asRs. 3,750.

(iv) Total of Purchases Book was Rs. 10,000 short.

(v) Sales of old furniture for Rs. 1,750 to Old Wares Stores was recorded in sales book. Book value of the furniture was Rs. 2,500.

Solution:

(i) Credit Madhav withvRs. 180 saying “By Excess debit for sales on …..Rs. 180″.

(ii) Debit the Discount Account with ` 2,000 saying “To Rectification of wrong credit of Rs. 1,000 for discount
allowed….Rs. 2,000.

(iii) Credit Sohan with Rs. 2,750 and debit Mohan with Rs. 3,750.

(iv) Debit Purchases Account with ` 10,000 saying “To Short total of Purchases Book….. Rs. 10,000″.

(v) Debit Sales Account with Rs. 1,750 and Loss on Sale of Furniture Account with Rs. 750 and credit
Furniture Account with Rs. 2,500.

(b) Errors Affecting Two or More Accounts. (Two Sided Errors): Errors which affect two or more accounts are as follows:
(i) Errors of complete omission.

(ii) Errors in recording in the subsidiary books.

(iii) Errors in posting to wrong account with or without wrong amount.

(iv) Errors of principle.

For rectification of these types of errors, following steps may be taken:

(i) Write down in the rough sheet, the correct entry necessary for recording the transaction.

(ii) Write down in the rough sheet the entry that has actually been passed.

(iii) Pass in the journal the requisite entry to arrive at the correct entry of step (i) and cancel the entry of step (ii).

Example: A purchase of Rs.5,000 from Rajesh entered in the purchases day book as Rs. 500. The rectification of this error shall involve:

(a) Purchases A/c Dr. 5,000 (correct entry)

To Rajesh 5,000

(b) Purchases A/c Dr. 500 (entry passed)

To Rajesh 500

Purchases A/c Dr. 4,500 (rectifying entry)

To Rajesh 4,500

Illustration :
Pass journal entries necessary to rectify the following errors:

1. An amount of Rs.2,000 withdrawn by the proprietor for his personal use has been debited to Trade Expenses Account.
2. A purchase of goods from Nathan amounting to Rs.3,000 has been wrongly entered in the Sales Book.

3. A credit sale of Rs.1,000 to Santhanam has been wrongly passed through the Purchases Book.

4. Rs. 1,500 received from Malhotra have been credited to Mehrotra.

5.Rs. 3,750 paid on account of salary to the cashier Dhawan stands debited to his personal account.

6. A contractor’s bill for extension of premises amounting to Rs.2,75,000 has been debited to Building
Repairs Account.

7. On 25th March, goods of the value of Rs. 5,000 were returned by Akash Deep and were taken into stock but the returns were entered in the books under date 3rd April, i.e.; after the expiration of the financial year on 31st March.

8. A bill of Rs. 2,000 for old office furniture sold to Sethi was entered in the Sales Day Book.

9. An amount of Rs. 800 received on account of interest was credited to Commission Account

Solution:

Journal Entries

Date	Particulars	L.F	Dr. Rs.	Cr.Rs.
1	Drawings Account Dr.		2,000
	To Trade Expenses Account			2,000
	(For the amount withdrawn for personal use wrongly charged to the trade expenses account)
			3,000
2	(a) Sales Account Dr.			3,000
	To Nathan
	(Being the cancellation of the entry passed through the Sales Book)

	(b) Purchases Account Dr.		3,000
	To Nathan			3,000
	(To record the credit purchases from Nathan)

	Alternatively: It is better to pass a combined entry:		3,000
	Sales Account Dr.		3,000
	Purchases Account Dr.			6,000
	To Nathan
	(For cancellation of entry passed through the Sales Book and record the credit purchases from Nathan)

3	Santhanam Dr.		2,000
	To Purchases Account			1,000
	To Sales Account			1,000
	(Rectification of the mistake caused by entering sale for Rs 1,000 to Santhanam in the Purchases Book)

4	Mehrotra Dr.		1,500
	To Malhotra			1,500
	(Being the rectification of wrong credit given to Mehrotra instead of Malhotra)

5	Salaries Account Dr.		3,750
	To Dhawan			3,750
	(Being the adjustment of salary wrongly debited to the personal account of the cashier)

6	Building Account Dr.		2,75,000
	To Building Repairs Account			2,75,000
	(Being the adjustment of amount wrongly debited to the building account for building repairs)

7	Returns Inwards Account Dr.		5,000
	To Akash Deep			5,000
	(Being the entry necessary to record the return inwards within the financial year)
	Entry in the books of next accounting year’s
	Akash Deep Dr.
	To Return Inwards Account		5,000
	(Cancellation of unwanted entry)			5,000

8	Sales Account Dr.		2,000
	To Office Furniture Account			2,000
	(Being the sale of old office furniture wrongly passed through the sales book)

9	Commission Account Dr.		800
	To Interest Account			800
	(Being the adjustment of amount wrongly credited to the commission account for interest received)

Note :- In entry 7, the entry passed to record the above returns made on 3rd April, will have to be cancelled by passing a reverse entry as and when error is located.

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