Rectification of Accounting Errors

Arjun EP

Published on: June 28, 2020

It is saying, ‘To err is human.’ It means human being does mistake.

The mistakes may be while recording, casting, carrying forward, posting and summarising the financial transactions.

Various types of errors are possible while maintaining the books of accounts.

Some of them are detected by trial balance.

But some errors cannot be detected from trial balance.

Generally, trial balance is the base to check arithmetical accuracy.

If the trial balance does not have equal debit and credit totals, there is an error somewhere in the records.

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Rectification of Accounting Errors | What is the rectification of accounting errors?

When errors are discovered in the books of account, they are corrected by journal entries in concerned accounts.

Crossing and erasing of errors are not practiced because they reduce the legal values of accounts.

It also makes them dirty.

The correction of errors is journalized in systematic manner by passing a special entry in the journal proper.

It is known as rectification of errors.

Before preparing the rectification entry, one should identify the errors of account.

The following steps are to be followed to identify the errors:

Steps to be followed in locating the errors

1	Check the debit totals and credit totals of trial balance and ascertain the difference between them if any.
2	Find out that different amount. Otherwise,
3	Divide the difference amount by 2 in order to find out the balance of same amount in the trial balance. Also check whether any amounts have been posted twice in the trial balance.
4	Multiply the difference amount by 2 in order to find out the balance of same amount in the trial balance.
5	If the second and third step fails to locate the errors, a transposition error may have occurred. Such as $/₹/Rs 7,200 is recorded instead of $/₹?Rs 2,700. Divide the difference by 9. If the difference figure is divisible by 9 without remainder, it is a transposition error.
6	Check the balances of all ledger accounts including are included in the trial balance or not.
7	Check whether the opening balances have been carried forward correctly.
8	Compare the current year’s trial balance with that of previous year in case of large difference between debit and credit totals.
9	If above techniques fail to identify the errors, recheck the totals of subsidiary books, posting from journal and subsidiary books, balances extracted from ledger accounts, casting of ledger balances and recheck whole prime entry as required.