03.

Correction of Accounting Errors

Sanjaya Jayasundara
B.Sc.(Finance) Sp.
University of Sri Jayewardenepura,
ICASL Finalist,
Diploma in Capital Market (Reading)
www.ayojana.lk +9471 25 45 001
03. Correction of Accounting Errors
(01) Reasons for Accounting Errors
(02) Situations of where Accounting Errors can take place
(03) Prevention of Accounting Errors
(04) Identification of Accounting Errors
* Errors that cannot affect the balance of Trial
Balance
* Errors that affect the balance of Trial Balance
* Suspense Account

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Reasons for Accounting Errors
In maintaining records,

* Errors of omission & commission.

Errors of omission wholly or partly omitted in the books
Errors of Commission wrong posting of wrong amounts in wrong
side in accounts.
* Lack of knowledge.
* Carelessness.
* Frauds (Intentionally changing/ not recording/making additional
entries)

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Situations of where Accounting Errors can take place

When recording in prime entry books

01) During entries are made.
02) When balancing off.
03) When transferring to ledger.

When transferring to ledger

01) During entries are made.
02) At the time of balancing.

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Prevention of Accounting Errors

* Recruiting.

* Checking & supervising frequently.

* By providing proper training to employees.

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Identification of Accounting Errors

Errors can be divided into,

1)Errors that cannot affect the balance of Trial

Balance

2)Errors that affect the balance of Trial Balance

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01.Errors that cannot affect the balance of Trial Balance

(01) Omission of a transaction from the books ( Errors of omission)

transaction is entirely omitted from the books.
to rectify record the double entry of the transaction in the ledger.
Example The telephone bill of Rs. 5000 paid by cash has not been recorded
in the ledger.
General Journal
Description Debit Credit

Telephone Bill Account Dr. 5000

Cash Account 5000

( Correction of Telephone bill payment of Rs.

5000 omitted from the books)
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(02) Recording of an incorrect amount of a transaction in both accounts.

The correct value of a transaction may be over- stated or under stated due
to various reasons.
Example 1 Purchase returns amounting Rs. 9300 to Gayan has been
recorded in the books as Rs. 3900.
As both accounts have been under stated by Rs. 5400, relevant accounts
should be corrected with Rs. 5400.
General Journal
Description Debit Credit
Gayan Account Dr. 5400

Return Outward Account 5400

(Correction of purchase return of 9300

recorded as 3900)
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Example 2 Discount received amounting to Rs. 7800 has been recorded in
the books as Rs. 8700.
General Journal
Description Debit Credit
Dis. Received Account Dr. 900
Creditors Account 900
( Correction of discount received Rs. 7800
recorded as Rs. 8700)

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(03) Recording of the same transaction twice in the ledger.

Example :- Purchase returns of Rs. 5000 to creditors has been recorded in the
ledger twice.
To rectify this error , half of the amount out of which has been recorded twice
should be recorded in the opposite side of relevant accounts.
General Journal
Description Debit Credit
Purchase Returns Account Dr. 5000
Creditors Account 5000
( Correction of purchases returns of Rs. 5000 twice
recorded in relevant accounts)

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(04) Errors of Principles.

Errors as a result of not following the basic principles.

Example 1 :- Purchase of a furniture worth Rs. 10000 has been debited to
purchase account.
Furniture has been purchased for the use of the business. So it should be
debited to an asset account.
Only the goods purchased with the intention of re-sale are recorded in the
purchase account.
General Journal
Description Debit Credit
Furniture Account Dr. 10000
Purchase Account 10000
( Correction of purchase of furniture amounting to Rs.
10 000 recorded in the purchase account)

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Example 2 Building repair expenses of Rs. 10000 has been recorded in the
Building Account.
General Journal
Description Debit Credit
Building Repair Expenses Acc. Dr. 10000
Building Account 10000
(correction of building repair expenses of Rs.
10000 recorded in the building account)

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(05) Compensating Errors

An error is set off by another error /s in another account/s.

Ex :- Stock for Rs. 10000 and furniture for Rs. 15000 purchased.
But entered stock as Rs. 15000 and furniture as Rs. 10000 .
General Journal
Description Debit Credit
Furniture Account Dr. 5000
Purchase Account 5000
( Rectifying error of under- stated Furniture Acc.
And over-stated Purchase Acc. By Rs. 5000)

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02 ) Errors that affect the balance of Trial Balance

* Due to some errors the total of debit and credit balances of the trial
balance do not agree.

Steps to be taken to rectify the errors

01) Find out the difference.
02) As the reason for this difference is not sure (suspense), write the word
Suspense Account in front of the difference and balance the trial
balance temporarily.
03) Find out the reasons for difference.
04) Rectify the errors using journal entries.

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Suspense Account

It is a temporary account formed to enter the difference of the trial balance

until the errors are rectified.

Reasons for disclosed errors

01) Omission of one entry.
02) Recording two different amounts.
03) Recording the double entry in the same side of the both accounts.
04) Errors in casting, balancing & transferring of prime entry books into
ledger accounts.
05) Errors in preparation of the trial balance.

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Examples for disclosed errors

01) Omission of one entry

Example :- Telephone bill paid Rs. 5000 entered only in cash book but
not in Telephone bill account.
General Journal
Description Debit Credit
Telephone Bill Account Dr. 5000
Suspense Account 5000
(Debiting Telephone bill paid amount Rs. 5000)

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02) Recording two different amounts
Example :- A motor vehicle bought for Rs. 100000 debited to the
machine account Rs. 100000 but cash account credited as Rs. 10000.
General Journal
Description Debit Credit
Suspense Account Dr. 90000
Cash Account 90000
(Crediting cash account 90000 recorded as
10000)

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03) Recording the double entry in the same side of both accounts .
Example :- Salary payment Rs. 15000 has been recorded in the
debit side of both accounts.
General Journal
Description Debit Credit
Suspense Account Dr. 30000
Cash Account 30 000
(Correction of Rs. 15000 incorrectly debited to
cash account)

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04) Errors in casting, balancing & transferring of prime entry books into
ledger accounts.

Due to this kind of errors, the total of both sides of the trial balance will not be equal.

Example :- Rs. 5000 has been under-cast in totaling the Sales Return Journal.
General Journal
Description Debit Credit

Sales Return Account Dr. 5000

Suspense Account 5000
( Correction of under-cast of Sales Return Journal
by Rs. 5000)

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05) Errors in preparation of the trial balance.

An entry is made only in the suspense account to rectify the error occurred
in the preparation of trial balance.
Example:- Rs. 15000 the balance of Discount Received Account has not been
extracted to the trial balance.
General Journal
Description Debit Credit
Suspense Account Dr. 15000

(Cancellation of the amount recorded in the suspense account due to non-

recording the balance of discount received account in the trial balance)

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Model Question
The trial balance prepared as at 31st March 2012 by Sanjaya PLC did not tally. The
difference of the trial balance Rs. 55 000 was credited to a suspense account. Subsequent
examination of accounting records revealed following errors.
(01) A sales invoice of Rs. 15 000 has been omitted from the books.
(02) Bank loan repayment of Rs. 10 000 has been recorded only in the cash book.
(03) Dividend income of Rs. 45 000 has been recorded in dividend income account as Rs. 25
000.
(04) Rs. 15 000 the balance of one page of the Sales account has not been brought forward
to the next page.
(05) Rent income Rs. 20 000 has not been recorded in the trial balance.
(06) Interest received Rs. 5 000 has been recorded debit side in the Interest expense
account .
You are required to :
1. The journal entries to rectify the above errors.
2. Suspense Account,
If you want to get answer for above question send a request to following
e-mail address. sanjaya@ayojana.lk
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 Thank you
All the best..!

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