RECTIFICATION OF ERRORS

The term 'error' refers to unintentional mistakes in financial information, e.g. mathematical or clerical mistakes, oversight or misinterpretation of facts, or unintentional misapplication of accounting policies.

While recording transactions and events various errors may be committed unintentionally. When a journal entry contains an error, the entry can be erased or crossed out and corrected—if the error IS discovered immediately. However, if the errors are detected after posting to ledger accounts, the correcting entries are made. The correcting entry is recorded in journal and posted to the general ledger exactly as regular entries are.

Example:

(i)                       A repair expenses was erroneously debited to Plant and machinery on November 25. The error is discovered on December 31: Corrective Entry: 31st Dec.

Repair Expenses A/c ———— Dr.

                 To Plant and Machinery A/c

The corrective entry shows a credit to plant and machinery to cancel of offset the erroneous debit to plant and machinery.

(ii)                     A collection on account was erroneously credited to sales on Jan.1 The error is discovered on Mach 26. Corrective Entry: March 26

Sales Account Dr.

                To sundry Debtors A/c

The debit to Sales in the correcting entry offset the incorrect credit to sales in the erroneous entry. The credit to Account Receivable in the correcting entry places the collected amount where it belongs.

Some errors are counter balanced:-- Accounting errors that are undetected can affect a variety of items, including revenues and expenses for a given period. Some errors are counterbalanced by offsetting errors in the ordinary accounting process in the "next period. Such errors misstate net income in both periods, but by the end of the second period the errors are counterbalance, and they affect the balance sheet of only first period, not the second period.

#RECTIFICATIONOFERRORS