RECTIFICATION OF ERRORS

CORRECTION OF ERRORS
When entries are made in the books of account, some wrong postings or calculations are possible
and these are known as errors. When discovered, the necessary correcting entries must be made
in the accounts. For the correction of these errors, the necessary journal entries are made. The
use of journal for the correction of errors is a common feature.
The errors may be divided in two types;-
A. ERRORS NOT AFFECTING THE TRIAL BALANCE
B. ERORS AFFECTING THE TRIAL BALANCE
Errors Affecting the Trial Balance (SUSPENSE ACCOUNT)
These errors relate to incorrect additions, subtraction or entries made on wrong side of the books.
These errors are disclosed by a trial balance because the totals of debit and credit sides do not
agree.
For the correction of these errors, a suspense account is opened and the difference in the trial
balance is posted in this account, if the debit side of a trial balance is smaller than this amount is
debited in the suspense account and vice versa. When the errors are discovered, they are
corrected by double entry through the suspense account. When all the errors have been
discovered and corrected, the balance on the suspense account is eliminated. In this case:-
(a) DR: Respective account if omitted.
CR: Suspense a/c
(b) DR: Suspense a/c
CR: Respective a/c if omitted
(c) If any debit entry has been made on credit side then to correct it, double amount must be
debited and vice versa.
EXAMPLA 2
A trial balance was extracted from the books of A. BARKI and it was found that the debit side
exceeded the debit side exceeded the credit side by sh. 400. This amount was entered in the
suspense account. Subsequently, the following errors were discovered and corrected.
(a) The purchases were over-added by sh. 200.
(b) An amount paid to A. Smith was debited to his account as sh. 980 instead of sh.890.

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(c) The sales were under-added sh. 110
Show the entries in the suspense account

ANSWER
SUSPENSE ACCOUNT
PURCHASES Sh.
ACCOUNT 200
A. SMITH 90
SALES 110
___
400
BALANCE Sh.
AS PER TRIAL 400
BALANCE
___
400

Example 3

While extracting the trial balance of Kimwaki Electrical Engineers Ltd as at 31st December,
1989 it was observed that the total debits exceeded the total credits by Sh. 23,800. Investigations
revealed the following errors:-

(a) Sales had been overcast by Ksh. 1,500

(b) Returns Outwards Account had not been credited with an amount of Ksh. 6,132.

(c) A payment by a debtor of Ksh. 15,000 by a direct bank transfer had not been entered in the
debtor’s account.

You are required to show:

(a) The necessary journal entries to correct the above errors

(b) Suspense account duly balanced as it would appear after the correction of the above errors.

Correcting Profit

Examination questions frequently require a net profit figure to be corrected. To arrive at the
correct net profit figure, the errors are corrected first and then the effect of these corrections on

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net is determined. These adjustments are added or subtracted from the net profit figure given in
the question to find out the adjusted net profit. For this purpose, the following format may be
adopted.

Sh.

Net profit as per questions X

ADD

1. X

2. X

3. X X

DEDUCT

1. X

2. X

3. X

Adjusted or

Correct net

Profit X

Correction of errors

According to dual aspect concept every debit entry has a corresponding credit entry with the
same amount. Therefore, if all accounting entries are correctly recorded in journals and posted to
ledgers, trial balance should balance. A trial balance is prepared to check the arithmetical
accuracy of the double entries made in the ledger and as a basis to prepare financial statements.
In case the trial balance fails to agree, an investigation is made to detect errors in the ledger.

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There are two types of errors:

1. Errors not affecting trial balance

Errors in the ledger are corrected using the general journal with an explanatory note (Narration).

Errors not affecting trial

1. Error of principle

This arises when a transaction is recorded in the wrong class of account without due regards to
the fundamental accounting principle.

Example: A machine purchased for Ksh 100, 000 cash has been debited to purchases account.

General Journal
Details DR CR
Ksh Ksh
Machine Account 100,000
To Purchases Account 100,000
(Being entries for machine purchased for Ksh 10000
cash debited to purchases account)

2. Error of Commission

This arises when a transaction is recorded in the wrong personal account. It occurs when a
transaction is recorded in wrong account but to the correct type of account.

Example: Ksh 40,000 paid to P. Kamau by cheque was recorded in the account of J. Kamau.

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General Journal
Details DR Ksh Ksh
CR
P. Kamau account 40,000
To J. Kamau Account 40,000
(Being entries for an amount of Ksh 40,000 paid to P.
Kamau recorded in J. Kamau account)

3. Error of omission

This occurs where a transaction has been completely omitted from the books.

Example: A sale invoice to D. Rono Ksh 5,000 was completely omitted from the books.

General Journal
Details DR Ksh Ksh
CR
D. Rono 5,000
To Sales Account 5,000
(Being entries for a sales invoice to D. Rono completely
omitted from the books.)

4. Complete Reversal of Entries

In this case the debit account is credited and the credit account is debited with correct amount.
The correction of this error requires the figure to be doubled. (One to correct error and one for
original entry)

Example: Rent paid Ksh 3,000 by cheque wrongly recorded as rent received.

General Journal

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Details DR Ksh Ksh
CR
Rent (DR) 3,000
To Bank Account 3,000
(Being entries for rent Ksh 3,000 paid by cheque
wrongly recorded as rent received)

5. Error of original entry

This occurs where the wrong amount is posted to both accounts although the accounts to which
entries were made are correct. It arises when there is an error in amount in the source document
before posting to the ledger.

Example: Goods returned from P. Weche Ksh 6,390 was recorded in both accounts as Ksh
3,690.

General Journal
Details DR Ksh Ksh
CR
Purchases Return 270
To P. Weche Account 270
(Being entries for goods returned from P. Weche Ksh 6,390
recorded in both accounts as Ksh 3690)

6. Compensating Error

These are two or more errors which cancel themselves out. Errors on one side of the ledger are
compensated by errors of the same amount on the other side

Example: The sales and purchases account are both understated by Ksh 10,000.

General Journal
Details DR CR

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 Ksh Ksh
Purchases (DR) 10, 000
To Sales 10,000
(Being entries for sales and purchases account understated
by Ksh 10,000)

Errors affecting trial balance

When a trial balance fails to agree, the difference between the two sides is recorded in a suspense
account. This is simply used to balance the trial balance. Errors affecting the trial balance are
then corrected through the suspense account.

The main errors affecting the trial balance are:

1. Transaction recorded only once in the books

The transaction may be debited but not credited and vice versa

2. Transaction recorded twice on same side

a) Transaction may be debited and again debited and vice versa

3. Understatement or overstatement in one side

a) Transaction may be well debited but understated on the credit side and vice versa

b) Transaction may be well credited but overstated on the debit side and vice versa

Effect of correcting errors on Gross profit and Profit for the year

Effect on
Gross Profit Profit for the year
Revenue / Sales DR – Decrease Decrease Decrease

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 CR – Increase Increase Increase
Return inwards DR – Increase Decrease Decrease
CR – Decrease Increase Increase
Opening inventory Increase Decrease Decrease
Decrease Increase Increase
Closing inventory Increase Increase Increase
Decrease Decrease Decrease
Purchases DR – Increase Decrease Decrease
CR – Decrease Increase Increase
Return outwards DR – Decrease Decrease Decrease
CR – Increase Increase Increase
Other income DR – Decrease No effect Decrease
CR – Increase No effect Increase
Expenses DR – Increase No effect Decrease
CR – Decrease No effect Increase

Worked Example

Catherine prepared a trial balance on 30 April 2019. The trial balance did not agree. She opened
a suspense account. On inspection of the books she found the following errors.

1. Motor vehicle expenses, Ksh 5,000, had been debited to the bank account and credited to
the motor vehicle expenses account.
2. Wages, Ksh 8,000, had been debited in the rent payable account.
3. A return of goods to a supplier, Ahmed, Ksh 5,950, had been incorrectly recorded in the
purchases returns journal as Ksh 2,950.
4. The discount received total in the cash book, Ksh 6,800, had not been entered in the
discount received account.

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 5. A cash sale, Ksh 12,500, had been entered in the sales account as Ksh 21,500.

REQUIRED

a) Prepare journal entries to correct the errors 1 – 5. Narratives are not required.

b) Prepare the suspense account after the correction of errors 1 – 5. Show the original
difference recorded in the trial balance.

General Journal
Details Dr Cr
Ksh Ksh
1 Motor vehicle expenses (DR) 10,000
To Bank 10,000
2 Wages (DR) 8,000
To Rent payable 8,000
3 Ahmed (DR) 3,000
To Purchases returns 3,000
4 Suspense (DR) 6,800
To Discount received 6,800
5 Sales (DR) 9,000
To Suspense 9,000

DR Suspense Account CR
Date Details Ksh Date Details Ksh
30 April Balance b/f 2,200 30 April Sales 9,000
Discount rec’d 6,800
9,000 9,000

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Example

The trial balance as at 30 April 20X7 of Timber Products Ltd did not balance. The credit side
had more by £2,513.

Subsequent investigations revealed the following errors:

(i) Discounts received of £324 in January 20X7 have been posted to the debit of the discounts
allowed account.

(ii) Wages of £2,963 paid in February 20X7 have not been posted from the cash book.

(iii) A remittance of £940 received from K Mitcham in November 20X6 has been posted to the
credit of B Mansell Limited.

(iv) In December 20X6, the company took advantage of an opportunity to purchase a large
quantity of stationery at a bargain price of £2,000. No adjustments have been made in the
accounts for the fact that three-quarters, in value, of this stationery was in stock on 30 April
20X7.

(v) A payment of £341 to J Winters in January 20X7 has been posted in the personal account as

£143.

(vi) A remittance of £3,000 received from D North, a credit customer, in April 20X7 has been
credited to sales.

The draft accounts for the year ended 30 April 20X7 of Timber Products Limited show a net
profit of £24,760.

Required:

(a) Prepare journal entries to correct the errors

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[(c)] Prepare a computation of the corrected net profit for the year ended 30 April 20X7
following corrections for the above accounting errors.

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