Rectification Entries

When an error is made in the books of accounts, it should be fixed so that the financial statements display the proper amounts. If the issue is discovered quickly, it can be corrected by removing the incorrect entry and replacing it with the proper one. If the error is discovered later, the rectification should be done by submitting a proper journal entry; such entries used to rectify an accounting error are known as rectification entries.

What is Error Rectification?

Rectification of errors is the process of correcting errors in entries. These errors can be of two types: errors made on both sides of an entry that have no effect on the trial balance and can be corrected with a journal entry.

Another example is an error that occurs on one side of the trial balance and disrupts the trial balance, which cannot be rectified by simply forwarding journal entries but may be corrected by forming a suspense account. To comprehend error repair, it is necessary to first grasp the types of errors. The many types of errors are explained in detail below.

Types of Accounting Error

Accounting errors come in many forms, and some of the more prevalent are described here.

Original Entry Error

When the incorrect amount is submitted to an account, this is referred to as an error of original entry. The error in posting the incorrect amount would likewise be reflected in any of the other accounts associated with the transaction. In other words, all of the accounts would be in balance except for the incorrect numbers.

Duplication Error

When the accounting entry is being duplicated, that means it is either debited or credited twice for the same entry. Let us take an example, if a cost was debited two times for the same amount, it is considered as a duplication error.

Omission Error

An omission error occurs when you neglect to record a transaction in the books. Omission errors are difficult to detect. One approach to detect them is to check your trial balance to see if your credits equal your debits. You may have typed a credit but not a debit for a transaction. Regular bank reconciliations will also assist you in double-checking the correctness of your records. It is preferable to be proactive and have a system in place to enter each transaction. When a corporation utilises petty cash to pay for expenditures, errors of omission are more likely to occur. Keep your receipts and documents, and schedule a weekly data entry time.

Errors of Principle

Principle Error occurs when a transaction wrongly applies an accounting concept. Principle errors do not conform to commonly recognised accounting standards (GAAP). It’s sometimes referred to as a “input error” since, while the number is valid, it’s stored in the incorrect account. Personal spending, for example, is mistakenly represented as corporate expenses in the books.

Compensating Error

When one error is balanced by an offsetting entry that is likewise wrong, this is referred to as compensating error. For example, if an incorrect quantity is recorded in inventory, it is balanced off by an incorrect amount being recorded in accounts payable to pay for that inventory.

Rectification of Errors that is not affecting the Trial Balance

These problems affect two or more accounts at the same time. As a result, these are two-sided faults. We may repair this by making a journal entry that shows the right debit and credit balances in the accounts. To fix an error, we must negate the impact of the incorrect debit or credit by reversing it and restoring the effect of the proper debit or credit.

When there is a short debit or an excess credit in an account, we must debit the account in question. When there is a short credit or an excess debit in an account, we must credit the account.

These errors include full neglect to record an entry in the journal or subsidiary books, erroneous recording of transactions in the books, complete omission of posting, and errors of principle.

Let us look at an example.

Question: Mohan’s credit sales of 15,000 were not reflected in the sales book. Correct the error.

Solution:

The error’s rectification is defined as:

Mohan’s A/C Dr.                          15000

              To Sales Account                         15000

(Being credit sales to Mohan accurately documented)

Rectification of Errors affecting the Trial Balance

These problems only impact one account. As a result, these are one-sided errors. We may correct these inaccuracies by adding an explanatory note to the account or by using Suspense A/c to create a journal entry. When we find an error before publishing it to the ledger, we may simply cross the incorrect amount, write the right amount above it, and initialise it. Similarly, we may repair an error in the ledger account.

Errors affecting the Trial Balance include casting errors, carrying forward balances errors, balancing account errors, posting the wrong amount in the correct account, posting in the correct account on the wrong side, omitting to show an account in the trial balance, and posting in the wrong side with the wrong amount.

Consider the following example:

Question: Depreciation written off on machinery in the amount of 8000 is not reported in the Machinery account. Rectify the error.

Solution:

Suspense A/C Dr.              8000

        To Machinery A/C                   8000

Conclusion 

If the error is discovered later, the rectification should be done by submitting a proper journal entry; such entries used to rectify an accounting error are known as rectification entries. When an error is made in the books of accounts, it should be fixed so that the financial statements display the proper amounts. If the issue is discovered quickly, it can be corrected by removing the incorrect entry and replacing it with the proper one. If the error is discovered later, the rectification should be done by submitting a proper journal entry; such entries used to rectify an accounting error are known as rectification entries. Rectification of errors is the process of correcting errors in entries. When the incorrect amount is submitted to an account, this is referred to as an error of initial entry.