This GSEB Class 11 Commerce Accounts Notes Part 2 Chapter 1 Rectification of Errors covers all the important topics and concepts as mentioned in the chapter.
Rectification of Errors Class 11 GSEB Notes
For writing the accounts certain rules are to “be followed. To write the accounts systematically, quickly and easily, a trader divides the journal and ledger into some subsidiary parts. Inspite of exercising necessary care, accountant may commit errors in writing the books of accounts as number of books are also more. Such errors cannot be rectified by over writing or by erasing the wrong part. If these errors are erased or overwritten, then accountant may get inspiration and in the firm, possibility of fraud and misappropriation can be increased. Therefore, once accounts are written and if any error is found then keep the error as it is. And to rectify that error, pass the other necessary notes, so that effect of that error will be removed from the books of accounts and the correct effect can be given. Thus, entries which are written to rectify the errors are known as rectification entries, which are always written in the book known as ‘Journal Proper’.
→ The process of detecting errors in accounts and rectifying them is called as Rectification of Errors.
→ There are two types of accounting errors :
- Errors which do not affect the trial balance and
- Errors which affect the trial balance.
→ Following are errors which do not affect the trial balance :
- Errors of omission
- Errors of principle
- Errors of recording to a wrong account
- Errors committed at the time of recording in primary books (Error of commission)
- Compensatory errors
→ Following are errors which affect the trial balance :
- Errors regarding posting
- Errors regarding balance of an account
- Errors in totalling the subsidiary books
- Errors committed at the time of preparing the trial balance
→ Main rules for rectification entry is “Undo what is wrong and Do what is correct.”
→ When a transaction is totally omitted to be recorded in the journal or the subsidiary book or the ledger, such an error is known as an ‘Error of omission’.
→ When an error arises because of non-compliance of accounting principles it is known as an ‘Error of principle’.
→ While writing the books of accounts, if the transaction in primary books are recorded either more or less than the correct amount or it is recorded in wrong subsidiary book such an error is known as an ‘Error of commission’.
→ In the books of accounts, when more than one errors are committed but their effects are recorded on both debit and credit sides, the trial balance tallies. Such errors are known as ‘Compensatory errors’.
→ When the trial balance does not tally because of some accounting errors but there is an urgency for preparing final accounts, temporarily the difference in the trial balance is transferred to one account in order to get it tallied and that account is known as a ‘Suspense Account’.
→ After preparing the final accounts, if the errors are detected and rectified and if the rectification entries are related to goods or income and expenditure accounts, there would be an effect on profit or loss and if the rectification entries are related to assets and personal accounts, there would be no effect on profit or loss.
→ Credit balance of a Suspense Account is shown on Capital – Liabilities side of a Balance Sheet and Debit balance of a Suspense Account is shown on Assets – Receivables side of a Balance Sheet.