Rectification Entries

Rectification Entries (Rectification of errors): These entries are passed when errors or mistakes are discovered
in accounting records. These entries are also known as Correction Entries. These entries are also passed in Journal
Proper.
In this study note, you were introduced to the reasons why errors could occur and to the fact that while some
errors affect trial balance and some errors do not affect it. In this section, we will see in depth how the corrections
are made to the wrong entries.
When the errors affecting the T.B. are made, the normal practice is to put the difference to an A/c called as
‘Suspense A/c’ till the time errors are located. On identification of errors, the one effect goes to the correct A/c and
the other effect to the Suspense A/c. This is done for one sided errors e.g. if sales book total is wrongly taken, but
individual customers are correctly debited. Such error will cause difference in trial balance as only Sales A/c is
wrongly credited. In such cases the rectification entry will be passed through Suspense A/c. In all other cases the
rectification is done by debiting or crediting the correct A/c head and by crediting or debiting the wrong A/c head.
Let us recapitulate the types of errors and the ways to rectify them in the following table

Type of error Rectification

Error of principle – entering revenue expense as capital A journal entry is passed to give correct effect.
expense or vice versa or entering revenue receipt as
capital receipt or vice versa.
Error of Omission – transaction forgotten to be entered Simply, the correct entry is passed.
in books of accounts.
Errors of commission – entering to wrong head of Debit or credit wrong A/c head and post it to correct
account. head.
Compensating errors – more than one error that could Pass correcting entry
compensate effect of each other.

Wrong totaling of subsidiary books As it affects T.B., pass through Suspense A/c
Posting on wrong side of an A/c Pass an entry with double effect – one to cancel wrong
side and other to give effect on correct side
Posting of wrong amount Pass entry with differential amount
A. Before Preparation of Trail Balance
If errors are detected before the preparation of Trail Balance, the effect of each error should be known.
The errors are of two types: viz
(a) Double Sided Error; (b) Single Sided Error
(a) Double Sided Error:
The following principles should be followed for the purpose.
(i) What was the correct entry?
(ii) What entry had been done?
(iii) Rectifying entry.
Example: Purchased a Building for ` 3,00,000 wrongly passed through purchase account.
Solutions:

(i) Building A/c Dr. 3,00,000

To Cash A/c 3,00,000
(ii) Purchase A/c Dr. 3,00,000
To Cash A/c 3,00,000
(iii) Building A/c Dr. 3,00,000
To Purchase A/c 3,00,000
(b) Single Sided Error:
Under the circumstances, no separate entry is required but the affected account should be rectified by
appropriate posting.
Example: Purchase account was overcast by ` 10,000.
Solution:
The correction to be made in Purchase Account in the following manner.
Dr. Purchase Account Cr.
Particulars ` Particulars `
By Error - Wrong posting 10,000
So, purchase account should be credited by ` 10,000.
A. After Preparation of Trial Balance
If the errors are detected after the preparations of trial balance, the following procedure should be followed:
(a) Double Sided Errors; and (b) Single Sided Errors.
(a) Double Sided Errors:
- Same as method (A) above i.e., before preparation of Trial Balance.
(b) Single Sided Errors:
- In case of Single side errors, relevant account to be rectified by applying Suspense Account.
 Suspense Account
If the Trial Balance does not agree we cannot prepare final accounts. In order to prepare final account, the
difference so appeared in trail balance is to be passed through Suspense Account. When the errors will be located
and rectified suspense account will automatically be Nil or closed. The suspense account will appear in the Balance
Sheet. When it appears in the debit side of trial balance, the same will appear in the assets side of the Balance Sheet
and vice-versa.
Example: Sales Day Book was overcast by ` 1,000.
Particulars Dr. (`) Cr. (`)
Sales A/c 1,000
To Suspense A/c 1,000

C. After Preparation of Final Accounts

If the errors are detected after the preparation of final accounts, the following steps should carefully be followed.
(a) For Double Sided Errors
(i) Same as (A) before preparation of Trial Balance or (B) after preparation of Trail Balance. But all the
nominal accounts are to be replaced by Profit and Loss Adjustment Account. And the rest one will be
same as (A) or (B) stated earlier.
(ii) Suspense Account will be carried forward to the next year; and
(iii) Real and Personal Accounts are to be carried forward to the next year.
Example: Purchase a Plant wrongly debited to Purchase Account for ` 10,000
Solution:
(i) If after Trial Balance
Plant A/c Dr.
To Purchase A/c
(ii) If after Final Account
Plant A/c Dr.
To Profit and Loss Adjustment A/c
(b) for Single Sided Errors:
Same principle is to be followed like (B) after preparation of Trial Balance and all the nominal account are to be
preplaced by Profit and Loss Adjustment Account.
Example – Discount allowed was not posted to discount Account.
Solution:
(i) If after Trial Balance
Discount Allowed A/c Dr.
To Suspense A/c
(ii) If after Final Account
Profit and Loss Adjustment A/c Dr.
To Suspense A/c
 SUMMARY: -

Illustration 21
Rectify the following errors assuming that the errors were detected (a) Before the Preparation of Trial Balance; (b)
After the preparation of Trial Balance and (c) After the preparation of Final Accounts.
(i) Purchase Plant for ` 10,000 wrongly passed through Purchase Account.
(ii) Sales Day Book was cast short by ` 1,000.
(iii) Cash paid to Mr. X for ` 1,000 was posted to his account as ` 100.
(iv) Purchase goods from Mr. T for ` 3,500 was entered in the Purchase Day Book as ` 500.
(v) Paid salary for ` 3,000 wrongly passed through wages account.
Solution:
In the Books of …………………….
Journal (without narration)
Before preparation of Trial After preparation of Trial After preparation of Final Accounts
Date
Balance Balance
Plant A/c Dr. 10,000 Plant A/c Dr. 10,000 Plant A/c Dr. 10,000
(i)
To Purchase A/c 10,000 To Purchase A/c. 10,000 To P&L Adjustment A/c 10,000
Sales account will be credited Suspense A/c Dr. 1,000 Suspense A/c Dr. 1,000
(ii) with ` 1,000 To Sales A/c 1,000 To P&L Adjustment A/c 1,000
X Account will be debited when X A/c Dr. 900 X A/c Dr. 900
(iii) ` 900 To Suspense A/c 900 To Suspense A/c 900
Purchase A/c Dr. 3,000 Purchase A/c Dr. 3,000 P&L Adjustment A/c Dr. 3,000
(iv)
To T A/c 3,000 To T A/c 3,000 To T’s A/c. 3,000
Salary A/c Dr. 3,000 Salary A/c Dr. 3,000 P&L Adjustment A/c. Dr. 3,000
(v)
To Wages A/c 3,000 To wages A/c 3,000 To P&L Adjustment A/c 3,000
Illustration 22
A merchant, while balancing his books of accounts notices that the T.B. did not tally. It showed excess credit of
`1,700. He placed the difference to Suspense A/c. Subsequently he noticed the following errors:
(a) Goods brought from Narayan for ` 5,000 were posted to the credit of Narayan’s A/c as ` 5,500
(b) An item of ` 750 entered in Purchase Returns Book was posted to the credit of Pandey to whom the goods had
been returned.
(c) Sundry items of furniture sold for ` 26,000 were entered in the sales book.
(d) Discount of ` 300 from creditors had been duly entered in creditor’s A/c but was not posted to discount A/c.
Pass necessary journal entries to rectify these errors. Also show the Suspense A/c.
Solution:
(a) Goods bought from Narayan are posted to credit of his A/c as ` 5,500 instead of ` 5,000. Here, it is correct to
credit Narayan’s A/c. But the mistake is extra credit of ` 500. This is one sided error, as posting to purchases
A/c is correctly made. So the rectification entry will affect the suspense A/c. This needs to be reversed by the
rectification entry:
Narayan’s A/c Dr. 500
To Suspense A/c 500
(b) Goods bought from Pandey were returned back to him. It should have appeared on the debit side of his A/c. For
rectifying we will need to debit his A/c with double the amount i.e. ` 1500 (` 750 to cancel the wrong credit
and another ` 750 to give effect for correct debit) and the effect will go to Suspense A/c. The correction entry
is:
Pandey A/c Dr. 1,500
To Suspense A/c 1,500
(c) Sale of furniture was recorded in sales book. What’s wrong here? Remember that sales book records sale of
goods only and nothing else. Sale of furniture will appear in either cash book (if sold for cash) or journal proper
(if sold on credit). Hence, wrong credit to Sales A/c must be removed and credit should be given to Furniture
A/c. It’s important to note that this rectification entry will not affect the Suspense A/c. The correction entry is:
Sales A/c Dr. 26,000
To Furniture A/c 26,000
(d) The discount received from creditor is not entered in discount A/c but was correctly recorded in creditors’ A/c.
This is one sided error and will therefore be routed through suspense for correction. A discount is received; it
must be credited being an income.
Suspense A/c Dr. 300
To Discount received A/c 300
Let us now see how suspense A/c will Look like. Excess credit of `1,700 in Trial Balance will be shown on the
debit side of suspense A/c. This will bring in total debit equal to total credit.
Dr Suspense Account Cr

Date Particulars J. F. Amount (`) Date Particulars J. F. Amount (`)

To Balance b/d 1,700 By Narayan 500
To Discount received 300 By Pandey 1,500
2,000 2,000
Please observe that after correcting passing all rectification entries, the Suspense A/c tallies automatically.
Illustration 23
Pass necessary journal entries to rectify the following errors:
(a) An amount of ` 200 withdrawn by owner for personal use was debited to trade expenses.
(b) Purchase of goods of ` 300 from Nathan was wrongly entered in sales book.
(c) A credit sale of ` 100 to Santhanam was wrongly passed through purchase book.
(d) ` 150 received from Malhotra was credited to Mehrotra.
(e) ` 375 paid as salary to cashier Dhawan was debited to his personal A/c.
(f) A bill of ` 2,750 for extension of building was debited to building repairs A/c
(g) Goods of ` 500 returned by Akashdeep were taken into stock, but returns were not posted.
(h) Old furniture sold for ` 200 to Sethi was recorded in sales book.
(i) The period end total of sales book was under cast by ` 100.
(j) Amount of ` 80 received as interest was credited to commission.
Solution:

Sl. No. Type of Entry Particulars Debit (`) Credit (`)

a. Wrong Entry Trade Expenses 200
To Cash 200
Correct entry Drawings 200
To cash 200
Rectification entry Drawings 200
To Trade Expenses 200

b. Wrong Entry Nathan 300

To Sales 300
Correct entry Purchases 300
To Nathan 300
Rectification entry Purchases 300
Sales 300
To Nathan 600
c. Wrong Entry Purchases 100
To Santhanam 100
Correct entry Santhanam 100
To Sales 100
Rectification entry Santhanam 200
To Sales 100
To Purchases 100

d. Wrong Entry Cash 150

To Mehrotra 150
Correct entry Cash 150
To Mehrotra 150
Rectification entry Mehrotra 150
To Malhotra 150

e. Wrong Entry Dhawan 375

To cash 375
Correct entry Salary 375
To cash 375
Rectification entry Salary 375
To Dhawan 375

f. Wrong Entry Building Repairs 2,750

To Cash 2,750
Correct entry Buildings 2,750
To Cash 2,750
Rectification entry Buildings 2,750
To Building Repairs 2,750

g. Wrong Entry No entry passed

Correct entry Sales Returns 500
To Akashdeep 500
Rectification entry Sales Returns 500
To Asashdeep 500
 h. Wrong Entry Sethi 200
To Sales 200
Correct entry Sethi 200
To Furniture 200
Rectification entry Sales 200
To Furniture 200

i. Wrong Entry No entry passed

Correct entry Suspense 100
To Sales 100
Rectification entry Suspense 100
To Sales 100

j. Wrong Entry Cash 80

To Commission 80
Correct entry Cash 80
To Interest 80
Rectification entry Commission 80
To Interest 80
Effect of Errors on Profit or Loss
Some errors may affect the profit or loss for the period while other won’t. How to find it out? Remember, the P&L
A/c reflects items of incomes, gains, expenses and losses. All these accounts are nominal accounts. When an error
occurs which affects a nominal account, it will affect profit or loss otherwise not. So, errors that affect real and
personal accounts will not affect profit or loss.
Illustration 24
The books of accounts of A Co. Ltd. for the year ending 31.3.2023 were closed with a difference of `21,510 in
books carried forward. The following errors were detected subsequently:
(a) Return outward book was under cast by ` 100.
(b) ` 1,500 being the total of discount column on the credit side of the cash book was not posted.
(c) ` 6,000 being the cost of purchase of office furniture was debited to Purchase A/c.
(d) A credit sale of ` 760 was wrongly posted as ` 670 to the customers A/c. in the sales ledger.
(e) The Sales A/c was under casted by ` 10,000 being the carry over mistakes in the sales day book.
(f) Closing stock was over casted by ` 10,000 being casting error in the schedule or inventory. Pass rectification
entries in the next year.
Prepare suspense account and state effect of the errors in determination of net profit of last year.
Solution:
In the Books of A Co. Ltd.
Journal

Dr. Cr.
Date Particulars L/F Amount (`) Amount (`)
(a) Suspense A/c Dr. 100
2023 To Profit & Loss Adjustment A/c 100
April 1 (Returns outward book was under cast now rectified).
(b) Suspense A/c Dr. 1,500
To Profit & Loss Adjustment A/c 1,500
(Discount received was not recorded, now rectified).
(c) Office Furniture A/c Dr. 6,000
To Profit & Loss Adjustment A/c 6,000
(Office furniture purchased wrongly debited to Purchase A/c, now
rectified.)
(d) Debtors’ A/c Dr. 90
To Suspense A/c 90
(Debtors account was posted ` 670 in place of ` 760, now rectified.)
(e) Suspense A/c Dr. 10,000
To Profit & Loss Adjustment A/c 10,000
(Sales account was under casted, now rectified)
(f) Profit & Loss Adjustment A/c Dr. 10,000
To Closing Stock A/c 10,000
(Closing Stock was overcastted, now rectified.)

Dr. Suspense Account Cr.

Date Particulars Amount (`) Date Particulars Amount (`)

2023 To Profit & Loss Adjustment A/c 100 2023 By Difference in Trial Balance 21,510
April To Profit & Loss Adjustment A/c 1,500 April By Debtors A/c. 90
1 To Profit & Loss Adjustment A/c 10,000 1
To Profit & Loss Adjustment A/c 10,000
21,600 21,600
 Effect on Profit
Increase (+) (`) Decrease (-) (`)
Item
(a)……………………………….. --- 100
(b)……………………………….. --- 1,500
(c)……………………………….. --- 6,000
(d) No effect --- ---
(e)……………………………….. --- 10,000
(f)……………………………….. 10,000 ---
10,000 17,600
Profit will be decreased by 7,600 ---
17,600 17,600
Illustration 25
The Trial Balance of a concern has agreed but the following mistakes were discovered after the preparation of final
Accounts.
(a) No adjustment entry was passed for an amount of `2,000 relating to outstanding rent.
(b) Purchase book was overcast by `1,000.
(c) ` 4,000 depreciation of Machinery has been omitted to be recorded in the book.
(d) ` 600 paid for purchase of stationary has been debited to Purchase A/c.
(e) Sales books was overcast by ` 1,000.
(f) ` 5,000 received in respect of Book Debt had been credited to Sales A/c.
Show the effect of the above errors in Profit and Loss Account & Balance Sheet.
Solution:
Effects of the errors in profit and loss A/c and Balance Sheet
Profit & Loss A/c. Balance Sheet
(a) Profit was overstated by ` 2,000 (a) Capital was also overstated by `2,000 &
(b) Gross profit was under stated by ` 1,000 & also the outstanding Liability was understated by 2,000.
Net Profit. (b) Capital was understated by ` 1,000.
(c) Net Profit was overstated by ` 4,000. (c) Machinery was overstated by ` 4,000 & so the
(d) No effect on Net Profit. Capital A/c was also overstated by ` 4,000.
(e) Gross Profit and Net Profit were overstated by (d) No effect in Balance Sheet.
`1,000. (e) Capital was overstated by ` 1,000.
(f) Gross Profit & Net Profit were overstated by (f) Capital & Sundry Debtors were overstated by
`5,000. `5,000.
Adjusting Entry: Adjusting Entries are passed in the journal to bring into the books of accounts certain unrecorded
items like closing stock, depreciation on fixed assets, etc. These are needed at the time of preparing the final
accounts.
E.g. Depreciation A/c Dr.
To, Fixed Assets A/c