Rectification of errors
Keeping in view the nature of errors, all the errors can be classified into the following
four categories:
Errors of Commission : These are the errors which are committed due to wrong posting
of transactions, wrong totalling or wrong balancing of the accounts, wrong casting of
the subsidiary books, or wrong recording of amount in the books of original entry, etc.
For example: Raj Hans Traders paid Rs. 25,000 to Preetpal Traders (a supplier of
goods). This transaction was correctly recorded in the cashbook. But while posting to
the ledger, Preetpal’s account was debited with Rs. 2,500 only.
Errors of Omission : The errors of omission may be committed at the time of recording
the transaction in the books of original entry or while posting to the ledger. These can
be of two types: (i) error of complete omission (ii) error of partial omission When a
transaction is completely omitted from recording in the books of original record, it is an
error of complete omission. For example, credit sales to Mohan Rs. 10,000, not entered
in the sales book. When the recording of transaction is partly omitted from the books, it
is an error of partial omission. If in the above example, credit sales had been duly
recorded in the sales book but the posting from sales book to Mohan’s account has not
been made, it would be an error of partial omission.
Errors of Principle : Accounting entries are recorded as per the generally accepted
accounting principles. If any of these principles are violated or ignored, errors resulting
from such violation are known as errors of principle. For example, amount spent on
additions to the buildings should be treated as capital expenditure and must be debited
to the asset account. Instead, if this amount is debited to maintenance and repairs
account, it has been treated as a revenue expense.
Compensating Errors : When two or more errors are committed in such a way that the
net effect of these errors on the debits and credits of accounts is nil, such errors are
called compensating errors. For example, if purchases book has been overcast by Rs.
10,000 resulting in excess debit of Rs. 10,000 in purchases account and sales returns
book is undercast by Rs. 10,000 resulting in short debit to sales returns account is a
case of two errors compensating each other’s effect.
Rectification of Errors
Errors can be classified into two categories for the purpose of rectification of errors-
Rectification of Errors which do not Affect the Trial Balance
The following errors do not affect the equality of the Trial Balance totals:
Errors of Omission: A transaction is omitted completely from the books so that there is
no debit and credit entry of the transaction, e.g. Drawings of Rs. 5000 cash by the
proprietor was not recorded.
Errors of Commission: An entry is posted to the correct side of the ledger but to the
wrong account, i.e. items have been posted to the wrong account of the same class,
e.g. Payment of Rs. 1000 cash by a customer A. John was wrongly posted to the
account of another customer, B. Johan.
Errors of Principle: An entry is made in the wrong class of account, i.e. when an
expense is treated as an asset and vice versa, e.g. Repairs to building Rs. 4000 was
debited to the Building Account.
Complete Reversal of Entries: An account that should be debited is credited and vice
versa, e.g. A cheque Rs. 2000 received from Sunita was debited to the account of Sunita
and credited to the Bank Account.
Compensating Errors: Errors (or error) on one side of the ledger are compensated by an
error (or errors), e.g. The Purchases Account and Sales Account were both overcast by
Rs. 1500.
Errors of Original Entry: The original figure may be incorrectly entered although the
correct double-entry principle has been observed using this incorrect figure, e.g. Credit
sales of Rs. 9650 to Ranjit was recorded in the Sales Account and Ranjit's account as
Rs. 6950.
Rectification of Errors which Affect the Trial Balance
Errors which are revealed by the Trial Balance are those errors which cause the Trial
Balance totals to be in disagreement.
Errors in Calculation: If there is any miscalculation of the Trial Balance totals or the net
account balances, the Trial Balance will not balance, e.g. There was an error in the
calculation of the cash balance, causing the Trial Balance totals not to balance too.
Errors in Omission of One Entry: Omission of either the debit or credit entry of a
transaction will cause the totals of the Trial Balance not to agree, e.g. A cheque Rs.
5000 received for commission was debited to the Bank Account only.
Posting to the Wrong Side of An Account: Entry into the wrong side of an account will
cause one side of the ledger to be more than the other, e.g. A cheque of Rs. 8000 paid
to creditor, K. Raj was credited instead of debited to his account.
Errors in Amount: If the debit entry of a transaction differs in amount with the credit
entry, the Trial Balance will not balance, e.g. Cash Rs. 9650 received from Anand was
debited to the Cash Account as Rs. 9650 and credited to the account of Anand as Rs.
6950.
...................................................
Capital and revenue expenditure
Capital expenditures are for fixed assets, which are expected to be productive assets for
a long period of time. Revenue expenditures are for costs that are related to specific
revenue transactions or operating periods, such as the cost of goods sold or repairs and
maintenance expense.
The differences between these two types of expenditures are as follows:
Timing - Capital expenditures are charged to expense gradually via depreciation, and
over a long period of time. Revenue expenditures are charged to expense in the current
period, or shortly thereafter.
Consumption - A capital expenditure is assumed to be consumed over the useful life of
the related fixed asset.
Size - A more questionable difference is that capital expenditures tend to involve larger
monetary amounts than revenue expenditures. This is because an expenditure is only
classified as a capital expenditure if it exceeds a certain threshold value; if not, it is
automatically designated as a revenue expenditure. However, certain quite large
expenditures can still be classified as revenue expenditures, as long they are directly
associated with sale transactions or are period costs.
Keeping in view the nature of errors, all the errors can be classified into the following
four categories:
Errors of Commission : These are the errors which are committed due to wrong posting
of transactions, wrong totalling or wrong balancing of the accounts, wrong casting of
the subsidiary books, or wrong recording of amount in the books of original entry, etc.
For example: Raj Hans Traders paid Rs. 25,000 to Preetpal Traders (a supplier of
goods). This transaction was correctly recorded in the cashbook. But while posting to
the ledger, Preetpal’s account was debited with Rs. 2,500 only.
Errors of Omission : The errors of omission may be committed at the time of recording
the transaction in the books of original entry or while posting to the ledger. These can
be of two types: (i) error of complete omission (ii) error of partial omission When a
transaction is completely omitted from recording in the books of original record, it is an
error of complete omission. For example, credit sales to Mohan Rs. 10,000, not entered
in the sales book. When the recording of transaction is partly omitted from the books, it
is an error of partial omission. If in the above example, credit sales had been duly
recorded in the sales book but the posting from sales book to Mohan’s account has not
been made, it would be an error of partial omission.
Errors of Principle : Accounting entries are recorded as per the generally accepted
accounting principles. If any of these principles are violated or ignored, errors resulting
from such violation are known as errors of principle. For example, amount spent on
additions to the buildings should be treated as capital expenditure and must be debited
to the asset account. Instead, if this amount is debited to maintenance and repairs
account, it has been treated as a revenue expense.
Compensating Errors : When two or more errors are committed in such a way that the
net effect of these errors on the debits and credits of accounts is nil, such errors are
called compensating errors. For example, if purchases book has been overcast by Rs.
10,000 resulting in excess debit of Rs. 10,000 in purchases account and sales returns
book is undercast by Rs. 10,000 resulting in short debit to sales returns account is a
case of two errors compensating each other’s effect.
Rectification of Errors
Errors can be classified into two categories for the purpose of rectification of errors-
Rectification of Errors which do not Affect the Trial Balance
The following errors do not affect the equality of the Trial Balance totals:
Errors of Omission: A transaction is omitted completely from the books so that there is
no debit and credit entry of the transaction, e.g. Drawings of Rs. 5000 cash by the
proprietor was not recorded.
Errors of Commission: An entry is posted to the correct side of the ledger but to the
wrong account, i.e. items have been posted to the wrong account of the same class,
e.g. Payment of Rs. 1000 cash by a customer A. John was wrongly posted to the
account of another customer, B. Johan.
Errors of Principle: An entry is made in the wrong class of account, i.e. when an
expense is treated as an asset and vice versa, e.g. Repairs to building Rs. 4000 was
debited to the Building Account.
Complete Reversal of Entries: An account that should be debited is credited and vice
versa, e.g. A cheque Rs. 2000 received from Sunita was debited to the account of Sunita
and credited to the Bank Account.
Compensating Errors: Errors (or error) on one side of the ledger are compensated by an
error (or errors), e.g. The Purchases Account and Sales Account were both overcast by
Rs. 1500.
Errors of Original Entry: The original figure may be incorrectly entered although the
correct double-entry principle has been observed using this incorrect figure, e.g. Credit
sales of Rs. 9650 to Ranjit was recorded in the Sales Account and Ranjit's account as
Rs. 6950.
Rectification of Errors which Affect the Trial Balance
Errors which are revealed by the Trial Balance are those errors which cause the Trial
Balance totals to be in disagreement.
Errors in Calculation: If there is any miscalculation of the Trial Balance totals or the net
account balances, the Trial Balance will not balance, e.g. There was an error in the
calculation of the cash balance, causing the Trial Balance totals not to balance too.
Errors in Omission of One Entry: Omission of either the debit or credit entry of a
transaction will cause the totals of the Trial Balance not to agree, e.g. A cheque Rs.
5000 received for commission was debited to the Bank Account only.
Posting to the Wrong Side of An Account: Entry into the wrong side of an account will
cause one side of the ledger to be more than the other, e.g. A cheque of Rs. 8000 paid
to creditor, K. Raj was credited instead of debited to his account.
Errors in Amount: If the debit entry of a transaction differs in amount with the credit
entry, the Trial Balance will not balance, e.g. Cash Rs. 9650 received from Anand was
debited to the Cash Account as Rs. 9650 and credited to the account of Anand as Rs.
6950.
...................................................
Capital and revenue expenditure
Capital expenditures are for fixed assets, which are expected to be productive assets for
a long period of time. Revenue expenditures are for costs that are related to specific
revenue transactions or operating periods, such as the cost of goods sold or repairs and
maintenance expense.
The differences between these two types of expenditures are as follows:
Timing - Capital expenditures are charged to expense gradually via depreciation, and
over a long period of time. Revenue expenditures are charged to expense in the current
period, or shortly thereafter.
Consumption - A capital expenditure is assumed to be consumed over the useful life of
the related fixed asset.
Size - A more questionable difference is that capital expenditures tend to involve larger
monetary amounts than revenue expenditures. This is because an expenditure is only
classified as a capital expenditure if it exceeds a certain threshold value; if not, it is
automatically designated as a revenue expenditure. However, certain quite large
expenditures can still be classified as revenue expenditures, as long they are directly
associated with sale transactions or are period costs.
