RECTIFICATION OF ERRORS
The entry already passed in the Cash Book on 3rd January, 2010 will be reversed by
entering on the credit side of the Cash Book : "By D. Das Rs. 100" (to reverse entry wrongly
passed on January 3).
(b) Returns Inward Account Dr. 100
To Suspense Account 100
(Being the mistake in totalling the Returns
Inward Book corrected)
(c) Furniture Account Dr. 300
To Purchases Account 300
(Being the rectification of mistake by which
purchase of furniture was entered in Purchases
book and hence debited to Purchases Account)
(d) Furniture Account Dr. 375
To Wages Account 375
(Being the wages paid to workmen for
making show-cases which should be
capitalised and not to be charged to
Wages Account)
(e) Suspense Account Dr. 7
To Creditor's (personal) Account 7
(Being the mistake in crediting the
Creditors Account less by Rs. 7, now corrected)
(f) P.C. Joshi Dr. 200
To Allowances Account 200
(Being the cheque of P.C. Joshi
dishonoured, previously debited to Alloweances Account)
(g) Drawings Account Dr. 1,000
To Miscellaneous Expenses 1,000
(Being the motor cycle purchased for
Mr. Dutt debited to his Drawings Account
instead of Miscellaneous Expenses Account
as previously done by mistake)
(h) Returns Inward Account Dr. 100
To Customer's (Personal) Account 100
(Correction of the omission to record return
of goods by customers)
(i) Singh & Co. Dr. 400
To Suspense Account 400
(Being the correction of mistake by which
the account of Singh & Co. was credited by
Rs. 200 instead of being debited)
2.120 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Suspense Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2009 Rs. 2009
Dec.31 To Difference in Dec. 31 By Returns
Trial Balance 493 " " Inwards A/c 100
" " To Creditor's A/c 7 " " By Singh & Co. 400
500 500
Illustration 7
The following errors, affecting the account for the year 2005 were detected in the books of Jain
Brothers, Delhi:
(1) Sale of old Furniture Rs. 150 treated as sale of goods.
(2) Receipt of Rs. 500 from Ram Mohan credited to Shyam Sunder.
(3) Goods worth Rs. 100 brought from Mohan Narain have remained unrecorded so far.
(4) A return of Rs. 120 from Mukesh posted to his debit.
(5) A return of Rs. 90 to Shyam Sunder posted as Rs. 9 in his account.
(6) Rent of proprietor's residence, Rs. 600 debited to rent A/c.
(7) A payment of Rs. 215 to Mohammad Sadiq posted to his credit as Rs. 125.
(8) Sales Book added Rs. 900 short.
(9) The total of Bills Receivable Book Rs. 1,500 left unposted.
You are required to pass the necessary rectifying entries and show how the trial balance would
be affected by the errors.
Solution
JOURNAL
Particulars L.F. Dr. Cr.
Amount Amount
Rs. Rs.
(1) Sales Account Dr. 150
To Furniture Account 150
(Rectification of sales of furniture treated
as sales of goods)
(2) Shyam Sunder Dr. 500
To Rama Mohan 500
(Rectification of a receipt from Ram Mohan
credited to Shyam Sunder)
FUNDAMENTALS OF ACCOUNTING 2.121
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
(3) Purchases Account Dr. 100
To Mohan Narain 100
(Purchases of goods from Mohan
Narain unrecorded)
(6) Drawing Account Dr. 600
To Rent Account 600
(Rectification of Payment of rent of
proprietor's residence treated as payment
of office rent)
N.B. : For 4, 5, 7, 8, 9 no journal entry can be passed as they affect a single account. The
correction will be as under:
(4) Credit Mukesh's Account with Rs. 240.
(5) Debit the account of Shyam Sunder by Rs. 81.
(7) Debit the account of Mohammad Sadiq by Rs. 340.
(8) Credit Sales Account by Rs. 900.
(9) Debit Bills Receivable Account with Rs. 1,500.
Effect of the Errors on Trial Balance
1. No effect
2. No effect
3. No effect
4. Trial Balance credit total short by Rs. 240.
5. Trial Balance debit total short by Rs. 81.
6. No effect
7. Trial Balance debit total short by Rs. 340.
8. Trial Balance credit total short by Rs. 900.
9. Trial Balance debit total short by Rs. 1,500.
Illustration 8
The trial balance of Mr. W & H failed to agree and the difference Rs. 20,570 was put into
suspense pending investigation which disclosed that :
(i) Purchase returns day book had been correctly entered and totalled at Rs. 6,160, but had
been posted to the ledger.
(ii) Discounts received Rs. 1,320 had been debited to discounts allowed.
(iii) The Sales account had been under added by Rs. 10,000.
(iv) A credit sale of Rs. 1,470 had been debited to a cutomer account at Rs. 1,740.
(v) A vehicle bought originally for Rs. 7,000 four years ago and depreciated to Rs. 1,200 had
been sold for Rs. 1,500 in the beginning of the year but no entries, other than in the bank
account had been passed through the books.
2.122 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
(vi) An accrual of Rs. 560 for telephone charges had been completely omitted.
(vii) A bad debt of Rs. 1,560 had not been written off and provision for doubtful debts should
have been maintained at 10% of debtors which are shown in the trial balance at
Rs. 23,390 with a credit provision for bad debts at Rs. 2,320.
(viii) Tools bought for Rs. 1,200 had been inadvertently debited to purchases.
(ix) The proprietor had withdrawn, for personal use, goods worth Rs. 1,960. No entries had
been made in the books.
Required :
(i) Pass rectification entries without narration to correct the above errors before preparing
annual accounts.
(ii) Prepare a statement showing effect of rectification on the reported net profit before
correction of these errors.
Solution
Particulars Dr. Cr.
(i) Suspense Account Dr. 6,160
To Return Outward A/c 6,160
(ii) Suspense Account Dr. 2,640
To Discount Allowed Account 1,320
To Discount Received Account 1,320
(iii) Suspense Account Dr. 10,000
To Sale Account 10,000
(iv) Suspense Account Dr. 270
To Customer Account 270
(v) Suspense Account Dr. 1,500
To Vehicle Account 1,200
To Profit on Sale of Vehicle Account 300
(vi) Telephone Charges Account Dr. 560
To Outstanding Expenses Account 560
(vii) Bad Debts Account Dr. 1,5601
To Sundry Debtors Account 1,560
Provision for Doubtful Debts Account Dr. 1642
To Profit and Loss Account 164
(viii) Loose Tools Account Dr. 1,200
To Purchases Account 1,200
(ix) Drawing Account Dr. 1,960
To Purchases 1,960
FUNDAMENTALS OF ACCOUNTING 2.123
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
1 Bad debts will be debited in the profit and loss account.
2 Provision @ 10% of Rs. 2,156; Excess provision Rs. 164.
Working Notes :
(i) Sundry Debtors as per books 23,390
Deduction vide item (iv) 270
Bad Debts 1,560 1,830
21,560
(ii) Suspense Account
Rs. Rs.
To Return outward Account 6,160 By balance b/d 20,570
To Discount allowed Account 1,320
To Discount Received Account 1,320
To Sales 10,000
To Customers 270
To Vehicles 1,200
To Profit on Sale of Vehicle 300
20,570 20,570
Illustration 9
Show by means of Journal entries how the following matters should be adjusted when preparing
the Annual Accounts of a firm for the year ended 30th September, 2009.
(a) Goods sold and recorded as sales for Rs. 4,000 were packed and the invoice for them sent
to the customers. Stock taking intervened and the parcel of goods was not despatched but
was included in stock-in-hand.
(b) Several employees took their salary in advance in the month of September, 2005 which
was payable to them in October, 2003 amounting to Rs. 2,500.
(c) A cheque of Rs. 2,500 received for a loss of stock sustained by fire has been paid by the
proprietor into his private bank account and not recorded in the business books.
(d) A cheque for Rs. 1,250 received as Insurance claim for loss of goods in transit at the time of
import, was deposited by the proprietor into his private bank account. The full value of
the invoice was passed through the purchase book.
(e) A purchase was made for a staff member of Rs. 1,000 and the cost was included in
purchases. A deduction of similar amount was made from his salary and the net payment
to him posted to salaries account.
(f) Bill received from Mr. Anup for repairs to furniture Rs. 300/- and new furniture supplied
for Rs. 1,000 was entered in the invoice book as Rs. 1,100.
2.124 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
(g) Furniture which stood in the books at Rs. 500 was sold for Rs. 275 in part exchange of
new furniture costing Rs. 875 and the new invoice of Rs. 600 was passed through the
purchase book.
Solution
JOURNAL
Adjustment Entries
Date Particulars Dr. Cr.
2009 Rs. Rs.
Sep.30
(a) Sales Account* Dr. 4,000
To Sundry Debtors Account 4,000
(Entry for credit sales reversed as goods have not been
despatched to the customer)
(b) Prepaid Salaries Account** Dr. 2,500
To Salaries Account 2,500
(Salaries paid in advance for Oct. and debited to Salaries
Account, now transferred to Prepaid Salaries Account)
(c) *** (i) Insurance Company Account Dr. 2,500
(or Loss by Fire Account)
To Trading Account 2,500
(Being the claim admitted by the Insurance
Company for loss of stock due to fire)
(ii) Drawings Account Dr. 2,500
To Insurance Company Account 2,500
(Being the rectification of cheque received for loss of stock
due to fire deposited in the private account of the proprietor)
(d) Drawings Account Dr. 1,250
To Purchases Account 1,250
(Being the rectification of cheque received as insurance claim
for loss of goods in transit deposited into private bank
Account of the proprietor)
(e) Salaries Account Dr. 1,000
To Purchases Account 1,000
(Goods purchased for staff-member recorded as trade
purchases, new charged to Salaries Account)
Note : * Alternatively in (a) goods recorded as sales may not be reversed, instead may be
excluded from closing stock, as the goods have been ascertained and appropriated
according to the contract. This treatment is recommended if the title in the goods
have already passed to customer.
FUNDAMENTALS OF ACCOUNTING 2.125
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
** In (b) it has been assumed that advance salary paid was for the month of Oct. 2005
and has been debited to Salaries Account.
*** In (c) it has been assumed that no entry has been passed in respect of the loss.
(f) Repairs Account Dr. 300
Furniture Account Dr. 1,000
To Purchases Account 1,100
To Mr. Anup 200
(Being the rectification of Bill received from Mr. Anup for repairs
to furniture Rs. 300 and new furniture supplied for Rs. 1,000
entered in the purchases book at Rs. 1,100)
(g) Furniture Account Dr. 375
Loss on sale of Furniture Account 225
To Purchases Account 600
(Being the rectification of net exchange of old and new
furniture passed through purchases day book)
Illustration 10
On going through the Trial balance of Ball Bearings Co. Ltd. you find that the debit is in excess
by Rs. 150. This was credited to "Suspense Account". On a close scrutiny of the books the
following mistakes were noticed:
(1) the totals of debit side of "Expenses Account" have beeen cast in excess by Rs. 50
(2) The "Sales Account" has been totalled in short by Rs. 100.
(3) One item of purchase of Rs. 25 has been posted from the day book to ledger as Rs. 250.
(4) The sale return of Rs. 100 from a party has not been posted to that account though the
Party's account has been credited.
(5) A cheque of Rs. 500 issued to the Suppliers' account (shown under Sundry Creditors)
towards his dues has been wrongly debited to the purchases.
(6) A credit sale of Rs. 50 has been credited to the Sales and also to the Sundry Debtors
Account.
(i) Pass necessary journal entries for correcting the above;
(ii) Show how they affect the Profits; and
(iii) Prepare the "Suspense Account" as it would appear in the ledger.
2.126 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
JOURNAL ENTRIES
Particulars L.F. Dr. Cr.
Rs. Rs.
Suspense Account Dr. 50
To Expenses Account 50
(Being the mistake in totalling of Expenses Account, rectified)
Suspense Account Dr. 100
To Sales Account 100
(Being the mistake in totalling of Sales Accounts rectified)
Supplier* Dr. 225
To Suspense Account 225
(Being the mistake in posting from Day Book to Ledger rectified)
Sales Returns Account Dr. 100
To Suspense Account 100
(Being the sales return from a party not posted to "Sales
Returns" now rectified)
Sundry Creditors Dr. 500
To Purchases Account 500
(Being the payments made to supplier wrongly posted to
purchases now rectified)
Sundry Debtors Dr. 100
To Suspense Account 100
(Being the sales wrongly credited to Customer's Account
now rectified)
* It is assumed that the day-book is the Purchase Day Book in which case only the supplier’s account would be posted wrongly
(creditor of Rs. 250 instead of Rs. 25). If however, by day-book is meant a book in which all transactions are recorded and posted
at the ledger therefrom, it would mean that both the Supplier’s Account and Purchases Account are wrongly posted.
FUNDAMENTALS OF ACCOUNTING 2.127
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
Suspense Account
Dr. Cr.
Rs. Rs.
To Expenses Account 50 By Difference in Trial Balance 150
To Sales Account 100 By Sundry Creditors 225
To Balance c/d 425 By Sales Returns Account 100
By Sundry Debtors 100
575 575
By Balance b/d 425
Since the Suspense Account does not balance, it is clear that all the errors have not been traced.
As a result of the above corrections the Net Profit will be :
Increased by Decreased by
Rs. Rs.
Mistake in totalling in "Expenses" 50
Mistake in totalling in "Sales" 100
Mistake in posting from day book to Ledger under
"Purchases" 500
Omission in posting under "Sales Returns" 100
650 100
Net Increase 550
As a result of these adjustments, the Profits will be increased by Rs. 550.
Illustration 11
Write out the Journal Entries to rectify the following errors, using a Suspense Account.
(1) Goods of the value of Rs. 100 returned by Mr. Sharma were entered in the Sales Day Book
and posted there from to the credit of his account;
(2) An amount of Rs. 150 entered in the Sales Returns Book, has been posted to the debit of
Mr. Philip, who returned the goods;
(3) A sale of Rs. 200 made to Mr. Ghanshyam was correctly entered in the Sales Day Book but
wrongly posted to the debit of Mr. Radheshyam as Rs. 20;
(4) Bad Debts aggregating Rs. 450 were written off during the year in the Sales ledger but
were not adjusted in the General Ledger; and
(5) The total of "Discount Allowed" column in the Cash Book for the month of September,
2005 amounting to Rs. 250 was not posted.
2.128 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Solution
JOURNAL
Particulars L.F. Dr. Cr.
Rs. Rs.
(1) Sales Account Dr. 100
Sales Returns Account Dr. 100
To Suspense Account 200
(The value of goods returned by Mr. Sharma
wrongly posted to Sales and omission of debt
to Sales Returns Account, now rectified).
(2) Suspense Account Dr. 300
To Mr. Philip 300
(Wrong debit to Mr. Philip for goods
returned by him, now rectified).
(3) Mr. Ghanshyam Dr. 200
To Mr. Radheshyam 20
To Suspense Account 180
(Omission of debit to Mr. Ghanshyam and wrong credit
to Mr. Radhesham for sale of Rs. 200, now rectited)
(4) Bad Debts Account Dr. 450
To Suspense Account 450
(The amount of Bad Debts written off not
adjusted in General Ledger, now rectified)
(5) Discount Account Dr. 250
To Suspense Account 250
(The total of Discount allowed during
September, 2003 not posted from the Cash
Book; error now rectified).
Illustration 12
The Trial balance of Messrs. A, B and C did not agree. A Suspense Account was opened with
the amount of the difference. The following errors were discovered on scrutiny:
(1) The addition of the Analysis Column of the Tabular Purchase Journal posted to Goods
Purchased for Resale Account was found to be short by Rs. 150 though the addition of the
total column was correct.
(2) A dishonoured B/R for Rs. 400 returned to the firm by bank had been credited to Bank
Account for collection of bills and debited to B/R Account. A cheque was later received
from the customer for Rs. 400 and was duly paid into the firm's bank account.
FUNDAMENTALS OF ACCOUNTING 2.129
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
(3) An amount of Rs. 450 treated as paid in advance on account of insurance in the previous
year was not brought forward.
(4) Sales on approval amounting to Rs. 2,000 were included in the Sales Account. Half of
these were returned but no entries were passed in respect of these goods. However, the
returned goods have been included in the closing stock at their cost price of Rs. 500.
(5) Of the total amount of Rs. 38,356 shown as Sundry Debtors, Rs. 1,260 represent credits
given to customers when the payments against sales invoices were received. However,
these invoices themselves were not entered in the books. A discount of 10% is allowed on
the selling price in all such invoices.
You are required to pass rectifying entries making use, of the Suspense Account, wherever
necessary.
Solution
Journal of M/s. A, B and C
Particulars L.F. Dr. Cr.
Rs. Rs.
1. Purchase for Resale A/c Dr. 150
To Suspense Account 150
(Short debit to 'purchases for Resale Account' on
account of undercasting on now corrected)
2. Customers A/c Dr. 400
To Bill Receivable A/c 400
(Amount of dishonoured bill receivable previously
debited to Bills Receivable Account, error now rectified)
3. Insurance Account Dr. 450
To Suspense Account 450
(Prepaid insurance in the previous year not brought
forward now debited to the Insurance Account)
4. Sales Accounts Dr. 1,000
To Customer's Account 1,000
(Goods worth Rs. 1,000 returned by a customer on
sale or return basis, previously omitted to be recorded;
error now rectified)
5. Discount Account Dr. 140
Customers Account Dr. 1,260
To sales Account 1,400
(Credit sales of Rs. 1,400 previously omitted from the
books, error now corrected)
2.130 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Note : Payment being equal to 90% of the gross sale is Rs. 1,400, i.e., 1,260 × 100/90. 1/10 of
this amount is discount.
Since the discount of 10% is allowed in all cases, it would be better to treat the sale to be
Rs. 1,260 and not Rs. 1,400, the discount is trade discount for which no account is opened, the
sales being recorded, at the net amount.
Illustration 13
The trial balance of Anil Traders did not agree. The difference was put in the Suspense Account
and the following trial balance was drafted :
Trial Balance as on 31st March, 2009
Dr. Cr.
Capital Account 45,000
Drawing Account 6,500
Purchases Account 92,750
Sales Account 1,07,200
Salaries and Wages Account 12,250
Furniture and Fittings Account 17,500
Sundry Debtors Account 30,250
Sundry Creditors Account 21,250
Stationery Account 1,250
Cash at Bank 5,700
Cash in Hand 2,300
Bills Receivable Account 15,750
Bills Payable Account 9,000
Rent and Rates Account 3,200
Suspense Account 5,000
1,87,450 1,87,450
On scrutiny the following errors were subsequently detected :
(a) Goods drawn by Mr. Anil, the proprietor, for personal consumption of Rs. 1,500 have not
at all been recorded.
(b) Goods sold to Ram for Rs, 1,250 on credit was debited to Rahim account for Rs. 250 only.
(c) Wages paid for fittings Rs. 500 was debited to salaries and wages account.
(d) Goods Purchased from Atul for Rs. 2,500 on credit was wrongly debited to his account.
(e) Bill received from Arun, a debtor, for Rs. 500 was debited to Ajay's account.
(f) A credit sale of Rs. 1,500 was recorded in Purchased Day Book and a credit purchase of
Rs. 2,000 was entered in Sales Day Book.
You are required to pass the rectification entries and redraft the trial balance.
FUNDAMENTALS OF ACCOUNTING 2.131
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
Solution
M/s Anil Traders
Journal
Particulars L.F. Dr. Cr.
Rs. Rs.
(a) Drawings Account Dr. 1,500
To Purchases Account 1,500
(Goods withdrawn for personal consumption
by the proprietor, now recorded)
(b) Ram (Debtor) Account Dr. 1,250
To Rahim (Debtor) Account 250
To Suspense Account 1,000
(Goods sold to Ram for Rs. 1,250 wrongly
debited to Rahim account for Rs. 250, now rectified)
(c) Furniture and Fittings Account Dr. 500
To Salaries and Wages Account 500
(Wages paid for fittings wrongly debited to
salaries and wages account, now rectified)
(d) Suspense Account Dr. 5,000
To Atul (Creditor) Account 5,000
(Goods brought on credit from Atul wrongly
debited to his account, now rectified)
(e) Suspense Account Dr. 1,000
To Arun (Debtor) Account 500
To Ajay (Debtor) Account 500
(Bill received from Arun wrongly debited to
Ajay Account, now rectified)
(f) Purchases Account Dr. 500
Sales Account Dr. 500
To Debtors Account* 500
To Creditors Accont* 500
(A credit sale and a credit purchase wrongly
entered in purchases day book and sales day
book respectively, now rectified)
* In the debtors' ledger and creditors' ledger, the affected individual accounts should be rectified
with the full amount. In other words, in the debtors' ledger the concerned debtors account
should be debited by Rs. 1,500 for credit sales and the debtor account wrongly debited for
credit purchase should be credited by Rs. 2,000.
2.132 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Trial Balance of M/s. Anil Traders as on 31.3.2009
Particulars Dr. Cr.
Capital Account 45,000
Drawings Account 8,000
Purchases Account 91,750
Sales Account 1,06,700
Salaries and Wages Account 11,750
Furniture and Fittings Account 18,000
Sundry Debtors Account 29,750
Sundry Creditors Account 26,750
Stationery Account 1,250
Cash at Bank 5,700
Cash in Hand 2,300
Bills Receivable Account 15,750
Bills Payable Account 9,000
Rent and Rates Account 3,200
1,87,450 1,87,450
Working Notes :
1. Suspense Account
Dr. Cr.
Rs. Rs.
To Atul Account (entry 'd') 5,000 By Balance b/d 5,000
To Arun Account [entry 'e'] 500 By Ram Account (entry 'b') 1,000
To Ajay Account [entry 'e'] 500
6,000 6,000
FUNDAMENTALS OF ACCOUNTING 2.133
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
2. Corrected Ledger Balances
Balance as per Rectification Reference Rectified
given trial effect (entry no.) balance
balance
Rs. Rs. Rs.
Drawings 6,500 (+) 1,500 (a) 8,000
Purchases 92,750 (-) 1,000 (a) & (f) 91,750
Sundry Debtors 30,250 (-) 500 (b), (e) & (f) 29,750
Furniture & Fittings 17,500 (+) 500 (c) 18,000
Salaries & Wages 12,250 (-) 500 (c) 11,750
Sundry Creditors 21,250 (+) 5,500 (d) & (f) 26,750
Sales 1,07,200 (-) 500 (f) 1,06,700
5.3 CORRECTION IN THE NEXT ACCOUNTING PERIOD
Rectification of errors discussed so far assumes that it was carried out before the books were
closed for the concerned year. However, sometimes, the rectification is carried out in the next
year, carrying forward the balance in the Suspense Account or even transferring it to the
Capital Account. Suppose, the Purchase Book was cast short by Rs. 1,000 in December, 2005
and a Suspense Account was opened with the difference in the trial balance. If the error is
rectified next year and the entry passed is to debit Purchase Account (and credit Suspense
Account), it will mean that the Purchases Account for year 2006 will be Rs. 1,000 more than
the amount relating to year 2006 and thus the profit that year 2006 will be less than the actual
for that year. Thus, correction of errors in this manner will 'falsify' the Profit and Loss Account.
To avoid this, correction of all amounts concerning nominal accounts, i.e., expenses and incomes
should be through a special account styled as "Prior Period Items" or "Profits and Loss
Adjustment Account". The balance in the account should be transferred to the Profits and Loss
Account. However, these Prior Period Items should be charged after deriving net profit of the
current year. 'Prior Period items' are material income or expenses which arise in the current
period as a result of errors or omissions in the preparation of the financial statements of one or
more periods. Prior Period Items should be separately disclosed in the current statement of
profit and loss together with their nature and amount in a manner that their impact on current
profit or loss can be perceived.
Illustration 14
Mr. A closed his books of account on September 30, 2009 inspite of a difference in the trial
balance. The difference was Rs. 830 the credits being short; it was carried forward in a Suspense
Account. In 2010 following errors were located :
(i) A sale of Rs. 2,300 to Mr. Lala was posted to the credit of Mrs. Mala.
(ii) The total of the Returns Inward Book for July, 2007 Rs. 1,240 was not posted in the ledger.
(iii) Freight paid on a machine Rs. 5,600 was posted to the Freight Account as Rs. 6,500.
(iv) White carrying forward the total in the Purchases Account to the next page, Rs. 65,590
was written instead of Rs. 56,950.
2.134 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
(v) A sale of machine on credit to Mr. Mehta for Rs. 9,000 was not entered in the books at all.
The book value of the machine was Rs. 7,500. The firm has the practice of writing off
depreciation @10% on the balance at the end of the year.
Pass journal entries to rectify the errors. Have you any comments to make?
Solution
Journal of Mr. A
Date Particulars L.F. Dr. Cr.
Rs. Rs.
2010 (i) Mrs. Mala Dr. 2,300
Mr. Lala Dr. 2,300
To Suspense A/c 4,600
(Correction of error by which a sale of Rs. 2,300
to Mr. Lala was posted to the Credit of Mrs. Mala)
(ii) Profit and Loss Adjustment A/c Dr. 1,240
To Suspense A/c 1,240
(Rectification of omission to post the total of
Returns Inward Book for July, 2009)
(iii) (a) Machinery A/c Dr. 5,600
Suspense A/c Dr. 900
To Profit & Loss Adjustment A/c 6,500
(Correction of error by which freight paid for
a machine Rs. 5,600 was posted to Freight
Account at Rs. 6,500 instead of capitalising it)
(b) Profit & Loss Adjustment A/c Dr. 560
To Plant and Machinery A/c 560
(Depreciation @ 10% charged on freight paid
on a machine capitalised)
(iv) Suspense A/c Dr. 8,640
To Profit & Loss Adjustment A/c 8,640
(Correction of wrong carry forward
of total in the purchase Account to
the next page Rs. 65,590 instead of Rs. 56,950)
(v) Mr. Mehta Dr. 9,000
To Plant & Machinery A/c 6,750
To Profit & Loss Adjustment A/c 2,250
(Correction of omission of a sale of machine
on credit to Mr. Mehta for Rs. 9,000 with a
book value of Rs. 7,500 on which depreciation
@ 10% has been charged in 2009)
FUNDAMENTALS OF ACCOUNTING 2.135
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
Comments
The Suspense Account will now appear as shown below :
Suspense Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
Rs. Rs.
2010 To Profit and Loss 2009 By Balance b/d 830
Adjustment A/c 900 Oct. 1 By Sundries
To Profit and Loss Mrs. Mala 2,300
Adjustment A/c 8,640 Mr. Lala 2,300
By Profit and Loss
Adjustment A/c 1,240
By balance c/d 2,870
9,540 9,540
Since the Suspense Account still shows a balance, it is obvious that there are still some errors
left in the books.
Profit & Loss Adjustment A/c
(For Prior Period Items)
Dr. Cr.
Date Particulars Amount Date Particulars Amount
2010 Rs. 2010 Rs.
To Suspense A/c 1,240 By Machinery A/c 5,600
To Plant and By Suspense A/c 900
Machinery A/c 560 By Suspense A/c 8,640
To Balance c/d 15,590 By Mr. Mehta 2,250
17,390 17,390
Illustration 15
A merchant's trial balance as on June 30, 2009 did not agree. The difference was put to a
Suspense Account. During the next trading period, the following errors were discovered :
(i) The total of the Purchases Book of one page, Rs. 4,539 was carried forward to the next
page as Rs. 4,593.
(ii) A sale of Rs. 573 was entered in the Sales Book as Rs. 753 and posted to the credit of the
customer.
2.136 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
(iii) A return to a creditor, Rs. 510 was entered in the Returns Inward Book; however, the
creditor's account was correctly posted.
(iv) Cash received from C. Dass, Rs. 620 was posted to the debit of G. Dass.
(v) Goods worth Rs. 840 were despatched to a customer before the close of the year but no
invoice was made out.
(vi) Goods worth Rs. 1,000 were sent on sale or return basis to a customer and entered in the
Sales Book. At the close of the year, the customer still had the option to return the goods.
The sale price was 25% above cost.
You are required to give journal entries to rectify the errors in a way so as to show the current
year's profit or loss correctly.
Solution
Journal Entries
Particulars L.F. Dr. Cr.
Rs. Rs.
(i) Suspense Account Dr. 54
To Profit and Loss Adjustment A/c 54
(Correction of error by which Purchase
Account was over debited last year- Rs. 4,593
carried forward instead of Rs. 4,539.)
(ii) Profit & Loss Adjustment A/c Dr. 180
Customer's Account Dr. 1,326
To Suspense Account 1,506
(Correction of the entry by which (a) Sales
A/c was over credited by Rs. 180 (b)
customer was credited by Rs. 753 instead of
being debited by Rs. 573.)
(iii) Suspense Account Dr. 1,020
To Profit & Loss Adjustment A/c 1,020
(Correction of error by which Returns
Inward Account was debited by Rs. 510
instead of Returns Outwards Account being
credited by Rs. 510)
(iv) Suspense Account Dr. 1,240
To C. Dass 620
To G. Dass 620
(Removal or wrong debit to G. Dass and
giving credit to C. Dass from whom cash
was received).
FUNDAMENTALS OF ACCOUNTING 2.137
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
(v) Customer's Account Dr. 840
To Profit & Loss Adjustment A/c 840
(Rectification of the error arising from non-
preparation of invoice for goods delivered)
(vi) Profit & Loss Adjustment A/c Dr. 200
Stock Account Dr. 800
To Customer's Account 1,000
(The Customer's A/c credited with Rs. 1,000
for goods not yet purchased by him; cost of
the goods debited to Stock and "Profit"
debited to Profit & Loss Adjustment Account)
(vii) Profit & Loss Adjustment A/c Dr. 1,534
To Capital Account 1,534
(Transfer of the Profit & Loss Adjustment A/c
balance to the Capital Account)
Will the students find out the difference in the Trial Balance?1
Illustration 16
Mr. Roy was unable to agree the Trial Balance last year and wrote off the difference to the
Profit and Loss Account of that year. Next Year, he appointed a Chartered Accountant who
examined the old books and found the following mistakes :
(1) Purchase of a scooter was debited to conveyance account Rs. 3,000.
(2) Purchase account was over-cast by Rs. 10,000.
(3) A credit purchase of goods from Mr. X for Rs. 2,000 entered as a sale.
(4) Receipt of cash from Mr. A was posted to the account of Mr. B Rs. 1,000.
(5) Receipt of cash from Mr. C was posted to the debit of his account, Rs. 500.
(6) Rs. 500 due by Mr. Q was omitted to be taken to the trial balance.
(7) Sale of goods to Mr. R for Rs. 2,000 was omitted to be recorded.
(8) Payment of Rs. 2,395 for purchase was wrongly posted as Rs. 2,593.
Mr. Roy used 10% depreciation on vehicles. Suggest the necessary rectification entries.
1 Credit side is short by Rs. 808
2.138 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
Solution
Journal Entries in the books of Mr. Roy
Date Particulars Dr. Cr.
Rs. Rs.
(1) Motor Vehicles Account Dr. 2,700
To Profit and Loss Adjustment A/c 2,700
(Purchase of scooter wrongly debited to
conveyance account now rectified-capitalisation
of Rs. 2,700, i.e., Rs. 3,000 less 10% depreciation)
(2) Suspense Account Dr. 10,000
To Profit & Loss Adjustment A/c 10,000
(Purchase Account overcast in the previous
year; error now rectified).
(3) Profit & Loss Adjustment A/c Dr. 4,000
To P's Account 4,000
(Credit purchase from P Rs. 2,000, entered
as sales last year; now rectified)
(4) B's Account Dr. 1,000
To A's Account 1,000
(Amount received from A wrongly posted to
the account of B; now rectified)
(5) Suspense Account Dr. 1,000
To C's Account 1,000
(Rs. 500 received from C wrongly debited to
his account; now rectified)
(6) Sundry Debtors (Q) Dr. 500
To Suspense Account 500
(Rs. 500 due by Q not taken into trial
balance; now rectified)
(7) R's Account Dr. 2,000
To Profit & Loss Adjustment A/c 2,000
(Sales to R omitted last year; now adjusted)
(8) Suspense Account Dr. 198
To Profit & Loss Adjustment A/c 198
(Excess posting to purchase account last
year, Rs. 2,593, instead of Rs. 2,395, now adjusted)
(9) Profit & Loss Adjustment A/c Dr. 10,898
To Roy's Capital Account 10,898
(Balance of Profit & Loss Adjustment A/c
transferred to Capital Account)
(10) Roy's Capital Account Dr. 10,698
To Suspense Account 10,698
(Balance of Suspense Account transferred
to the Capital Account)
Note : Entries No. (2) and (8) may even be omitted; but this is not advocated, Entry (6) will not
be posted in Q's Account.
FUNDAMENTALS OF ACCOUNTING 2.139
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
Profit and Loss Adjustment Account
(Prior Period Items)
Rs. Rs.
To P 4,000 By Motor Vehicles A/c 2,700
To Roy's Capital (transfer) 10,898 By Suspense A/c 10,000
By R 2,000
By Suspense Account 198
14,898 14,898
Suspense Account
Rs. Rs.
To Profit & Loss Adjustment By Sundry Debtors (Q) 500
Account 10,000 By Roy's Capital Account 10,698
To C 1,000 (Transfer)
To Profit & Loss Adjustment
Account 198
11,198 11,198
SELF EXAMINATION QUESTIONS
I. Pick up the correct answer from the given choices:
1. (i) Goods purchased from A for Rs. 10,000 passed through the sales book. The error will
result in
(a) Increase in gross profit. (b) Decrease in gross profit.
(c) No effect on gross profit. (d) Either (a) or (b).
(ii) If a purchase return of Rs. 1,000 has been wrongly posted to the debit of the sales
returns account, but has been correctly entered in the suppliers’ account, the total of
the
(a) trial balance would show the debit side to be Rs. 1,000 more than the credit
(b) trial balance would show the credit side to be Rs.1,000 more than the debit.
(c) the debit side of the trial balance will be Rs. 2,000 more than the credit side.
(d) the credit side of the trial balance will be Rs. 2,000 more than the debit side.
(iii) If the amount is posted in the wrong account or it is written on the wrong side of the
account, it is called
(a) error of omission. (b) error of commission.
(c) error of principle. (d) compensating error.
2.140 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
[Ans 1 : (i)-(a), (ii)-(c), (iii)-(b),]
2. Choose the most appropriate option from the given choices:
(i) Rs. 200 paid as wages for erecting a machine should be debited to
(a) Repair account. (b) Machine account.
(c) Capital account. (d) Furniture account
(ii) On purchase of old furniture, the amount of Rs. 1,000 spent on its repair should be
debited to
(a) Repair account; (b) Furniture account;
(c) Cash account; (d) Bank account
(iii) Goods worth Rs. 50 given as charity should be credited to
(a) Charity account; (b) Sales account;
(c) Purchase account. (d) Cash account
(iv) Goods worth Rs. 100 taken by proprietor for domestic use should be credited to
(a) Sales account; (b) Proprietor’s personal expenses;
(c) Purchases account (d) Expenses account.
(v) Errors of commission do not permit;
(a) Correct totalling of the balance sheet;(b) Correct totalling of the trial balance;
(c) The trial balance to agree. (d) None of the above
(vi) The preparation of a trial balance is for:
(a) Locating errors of commission; (b) Locating errors of principle;
(c) Locating clerical errors. (d) All of the above
(vii) Rs. 200 received from Smith whose account, was written off as a bad debt should be
credited to :
(a) Bad Debts Recovered account; (b) Smith’s account;
(c) Cash account. (d) Bad debts account
(viii) Purchase of office furniture Rs. 1,200 has been debited to General Expense Account.
It is :
(a) A Clerical error; (b) An error of principle;
(c) An error of omission. (d) Compensating error.
FUNDAMENTALS OF ACCOUNTING 2.141
Copyright -The Institute of Chartered Accountants of India
RECTIFICATION OF ERRORS
(ix) Sales of office furniture should be credited to
(a) Sales Account; (b) Furniture Account.
(c) Purchase Account. (d) Cash Account
[Ans: 2 : (i) (b); (ii) (b); (iii) (c); (iv) (c); (v) (c); (vi) (c); (vii) (a); (viii) (b); (ix) (b);]
II. From the given information, choose the most appropriate answer.
1. Classify the following errors under (a) Errors of omission, (b) Errors of commission and
(c) Errors of principle, (d) Compensating errors
(i) The total of sales book was not posted to the ledger.
(ii) Sales to Heena Rs. 143 was posted to Meena as Rs. 143.
(iii) Goods taken away by the proprietor for personal use not recorded anywhere.
(iv) The total of a folio in the sales book Rs. 1,000 was carried forward as Rs. 100.
(v) Repairs of newly purchased second-hand machinery debited to repairs accounts.
[Ans: 1: (i)-(a), (ii)-(b), (iii)-(a), (iv)-(b), (v)-(c)]
2. Point out the type of the errors given below: (put 1 against errors of omission, 2 against
errors of commission, 3 against errors principle, 4 if it is not an error).
(a) Sale of Rs. 120 was written in the purchases book.
(b) Salary paid to Ram, has been debited to his account.
(c) Purchase of furniture has been entered in the purchases book.
(d) Rs. 120 received from Ganesh has been debited to his account.
(e) Freight paid on machinery has been debited to the freight account.
(f) The discount columns of the cash book have not been posted.
(g) Repairs to buildings have been debited to the buildings account.
(h) The total of the Sales Book is Rs. 100 short.
(i) The sale of worth Rs. 337 has been posted as Rs. 373.
(j) The amount of a dishonoured bill has been debited to general expenses account.
[ Ans : 2 : - 1 : (f); 2 : (a) (d) (h) (i); 3 : (b) (c) (e) (g) (j)]
2.142 COMMON PROFICIENCY TEST
Copyright -The Institute of Chartered Accountants of India
III. Given below are the questions containing multiple answers. Choose the correct
answer(s).
1. Which of the following errors will not be revealed by the Trial Balance:
(a) compensating errors; (b) errors of principle;
(c) wrong balancing of an account; (d) wrong totalling of an account;
[Ans : 1 : (a) and (b) will not be revealed]
2. Which of the following errors will be revealed by the Trial Balance:
(a) compensating errors; (b) errors of principle;
(c) wrong balancing of an account; (d) wrong totalling of an account;
[Ans : (c) and (d) will be revealed]
FUNDAMENTALS OF ACCOUNTING 2.143
Copyright -The Institute of Chartered Accountants of India
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