Correction of accounting errors

Accountants prepare trial balance to check the correctness of the accounts. If the total of debit balances not in agreement with the total credit balances is a clear indication that some mistakes were made during the recording of transactions in the books of original entry or subsidiary books. It 's our duty of all to identify and remedy these errors, only then should we proceed with the preparation of final accounts. We also know that all types of errors are not revealed by trial balance, as some of the mistakes not to make the total of trial balance. Therefore, these can not be placed with the help of trial balance. An accountant should invest his energy for both types of errors found and corrected before preparing trading account, profit and loss account and balance sheet. Because if these are prepared before rectification these will not give us the correct result and profits and losses disclosed by them, should not be the gain 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, is an error of principle. For example, if the revenue expenditure is treated as capital expenditures or vice versa.

2. Material errors

These errors can again be divided as follows:

(I) errors of omission

When a transaction is wholly or partially not recorded in the books, is an error of omission. It may be regarding the failure to enter a transaction in the books of original entry or omission in respect of a transaction to send the books on the original entry in the ledger account in question.

(Ii) Errors of commission

When an entry is recorded incorrectly in whole or in part incorrect posting, calculation, melting or balance. Some of the errors of commission to make the trial balance, while others do not. Errors affecting the trial balance can be detected by preparing a trial balance.

(Iii) compensation of errors

Sometimes an error is compensated by another error in such a way that it is not disclosed by the balance test. These errors are called compensating errors.

From the point of view of the correction of errors, these can be divided into two groups:

(A) Errors affecting one account, and

(B) errors affecting two or more accounts.

The errors affecting an account

Errors that influence may be:

(A) casting errors;

(B) detachment fault;

(C) continue;

(D) balance, and

(E) absence, the trial balance.

These errors, first, to be located and corrected. These are ground or with the aid of input newspaper or giving an explanatory note in the account in question.



Correction

Phase correction of accounting errors

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

(I) prior to preparation of final accounts, and

(Ii) after the preparation of final accounts.

Errors rectified within the accounting period

The correct method of correcting an error is to pass journal entry so that it corrects the error that was committed and also gives effect to the voice that should have been passed. But while the errors are corrected before the preparation of accounts, in some cases, the correction can not be done with the help of the first note, since the errors have been such. Normally, the correction procedure, if carried out, prior to preparation of accounts is as follows:

(A) the correction of errors affecting one side of an account of these errors do not let the trial balance agree as to effect only one side of an account so that these can not be corrected with the help of the voice journal, if correction is required before the preparation of final accounts. Amount so required is put on the credit or debit the account in question, as the case maybe. For example:

(I) launched in book sales from Rs. 500 in January. The error is only on consignment, in order to correct the sale account, we should record on the credit side of the 'account of sales of cast. book sales for the month of January Rs. 500 "I'Explanation: .. As sales of the book was under cast by Rs 500, it means that all accounts other than sales account are correct, only the credit balance of sales is less than Rs 500, Rs 500 are so been accredited ... sales account.

(Ii) Discount allowed to Marshall Rs. 50 does not, he sent off the account. This means that the amount of Rs. 50 that should have been charged off account was not charged, so that the debit side of discount account has been reduced by the same amount. We should debit Rs. 50 in view of the off time, which previously has been omitted and the account off must be corrected.

(IIL) Goods sold to X wrongly debited in sales account. This error is carrying into account only sales, as the amount that should have been published on the slope of the credit was mistakenly placed on the debit of the account. To remedy, we ought to double the amount of transaction on the credit side of sales account by writing "from the sales of X wrongly debited previously."

(Iv) Amount of Rs. 500 attention to the Y, not debited to his personal account. This error made in the account of Y and only his side of debt is less than Rs. 500 because of failure to post the amount paid. Let us now write on the side of his debt. "To cash (omitted to be published) Rs. 500.

Correction of errors relating to two sides of two or more accounts

Since these errors on two or more accounts, rectification of such errors, if it is done before the preparation of the accounts can often be done with the help of a journal entry. While correcting these errors is debited to an account / accounts, while a similar amount is credited to the account in some other / accounts.

Correction of errors in the accounting period

As mentioned previously, it is desirable to detect and correct errors before preparing the final accounts for the year. But in some cases when, after considerable research, the accountant can not find the mistakes and he is eager to prepare the final accounts of the business to make the declaration for the sales tax or income tax purposes, you transfer the amount of the difference in trial balance to a newly opened 'Suspense Account'. In the following accounting period, how and when errors are found they are corrected with reference to suspense account. When all faults are detected and corrected on the suspense account should be closed automatically. We must not forget here that only those errors that have affected the totals of trial balance can be corrected with the help of suspense account. Those errors which do not effect the trial balance can not be corrected with the help of suspense account. For example, if it is found that the total debt of the trial balance was less by Rs. 500 for the reason that Wilson's account was debited Rs. 500, the following item of correction should be passed.

Difference in Trial Balance

Balance is affected only by the errors that are corrected with the help of suspense account. Therefore, to calculate the difference in suspense account of a table will be prepared. If the suspense account is debited in 'the voice of the adjustment amount will be made on the debit side of the table. On the other hand, if the transitory account is credited, the amount will be put on the credit of the table. Eventually, the balance is calculated and is reversed in the suspense account. If the credit side is greater, the difference would be put on the debit side of the suspense account. Effect of errors of final accounts

1. The errors that make the profit and loss

It 'important to note the effect that an en-or have the company's net profit. A point to remember is that only the accounts that are transferred to trading and profit and loss account when preparing the final effect of the accounting profit. It just means that mistakes in nominal accounts and Income goods shall take effect on net income. Error in these accounts may increase or decrease net income.

As the errors or their effect adjustment of profits following rules are useful to understand that:

(I) If because of an error in an account has been rated as a bit 'debt will decrease the profit or loss will increase, and when adjusted profits will increase and decrease losses. For example, a machine is revised to Rs. 10,000, but the amount charged for account-repair machines this error reduces the profit. The item adjusts the amount is transferred to the account from the account machinery equipment repairs, and increase profits.

(The) If, due to an error of quantity is omitted from the recording on the side of a nominal charge account results in an increase or decrease of useful losses. The correction of this error has the opposite effect, which means that the profit will be reduced and losses will be increased. For example, rent paid to the landlord, but the amount is debited from the personal account of the landlord, which will increase profit as the expense for rent is reduced. When the error is corrected, we will post the required amount in the account of rent that will increase spending on rent, so profits will be reduced.

(IIL) Net increase or decrease if the losses of a nominal account is wrongly credited. With the correction of this error, the profits will decline and losses mount. For example, the investments were sold and the amount was credited to sales account. This error increase profits (or reduce losses) when the error is rectified, the amount is transferred from the sales of investments into account when sales will be reduced, which will lead to lower profits (or losses increased ).

(Iv) Net decrease or increase losses if an account is failed to publish on the credit side of a nominal or goods account. When the same will be adjusted to increase profits or reduce losses. For example, the commission received is omitted to be posted to the credit of the Commission. This error will decrease profits or losses (increase) as income is not credited to profit and loss account. When the error is corrected, will have a reverse effect on profit and loss account as an additional income will be credited to the profit and loss account so that the profit increase (or decrease losses). If because of an error the profit or loss are carried out, will have its effect because capital gains are credited and losses are charged to capital and capital must also increase or decrease. As capital is shown on the liability side of the budget so that any errors will consider nominal budget as well. So we can say that an error in nominal account or commodities account the effects of profit and loss account and balance sheet.

2. The errors we make statements only

If an error is made in a real account or personal activities will be carried out, liabilities, debtors or creditors of the company and therefore will have its impact on the budget alone. because these items are presented in the budget and the budget is prepared only after the profit and loss account was prepared. So if there is an error in the cash account, bank account account, asset or liability shall be used only budget....