Rectification Of Errors Flashcards
Errors which affect one account can be:
A. Errors of posting
B. Errors of principle
C. None of these
D. Error of omission
2-Errors of principle arises when:
A. Any transaction is incorrectly recorded, either wholly or partially
B. Any transaction is left wholly or partially
C. Any transaction is affects one account
D. Any transaction is recorded in fundamentally incorrect manner
3-If a transaction has been completely omitted from the Journal it will be considered.
A. Error of commission I
B. Error of principle.
C. Error of omission
D. None of these
4-If goods purchased from Rahim for Rs.499, credited to Rehman’s account for Rs. 499. this is an:
A. Error of commission
B. Error of omission
C. Compensating error
D. Error of principle
5-Trade expenses of Rs.180 posted in the ledger as Rs.810, it will be considered as:
A. Error of principle
B. Error of omission
C. Error of casting
D. Error of transposition
6-If the error committed in the capital account, it will affect.
A. Trading account
B. Profit and loss account
C. Trading and profit and loss account
D. Balance sheet
7-Wages paid for the erection of a machine debited to wages account is an example of:
A. Error of omission
B. Error of commission
C. Error of principle
D. None of these
8-Error which affects profit and loss account relates to:
A. Nominal account
B. Property account
C. Personal account
D. None of these
9-Errors, which do not affect on profit calculation, will have an effect only on.
A. Trial Balance
B. Balance sheet
C. Profit or loss account
D. Trading account
10- Any difference in trial balance, is transferred to:
A. Sales account
B. Nominal account
C. Purchase account
D. Suspense account
11- When balance of suspense account has debit balance it will be shown in balance sheet on:
A. Liability side
B. Capital side
C. Asset side
D. Credit side
12-If amount for Rs.554 recovered from Ali, previously written off as bad debts we should:
A. Debited to Bad debts recovered account
B. Credited to Ali’ account
C. Debited to Bad debts account
D. Credited to Bad Debts recovered account
13- If the balance of suspense account is credit then it will be shown in balance sheet on:
A. Asset side
B. Asset and liability side
C. Asset and Capital side
D. Capital and liability side
14-Credit purchases from Ahmed costing Rs.180 were entered in the books for Rs.810 the rectifying entry is:
A. Debit suspense account
B. Debit purchases account for Rs.630 and credit Ahmed account for Rs.630
C. Debit Ahmed account for Rs.630 and Credit purchases account for Rs.630.
D. None of these
15-If sales return for Rs.3,000 were incorrectly included in sales book, gross profit will be:
A. Overstated by Rs.3, 000
B. Understated by Rs.6,000
C. Overstated by Rs.6, 000
D. Understated by Rs.3,000
16-When two or more than two errors occurred on the opposite side of the account and cancelled the affect of each other are called:
A. Errors of omission
B. Errors of commission
C. Compensating errors
D. Errors of principle
17-The process of totaling the data at the end of the period is called:
A. Casting
B. Compensating
C. Recording
D. Posting
18-If liability is recorded as income, it will be considered as:
A. Error of commission
B. Error of omission
C. Error of principle
D. None of these
19-Errors in casting of subsidiary books are called as:
A. Error of omission
B. Compensating Errors.
C. Error of posting
D. Clerical error
20- Errors of omission affects:
A. One account
B. Two accounts
C. Three accounts
D. None of these
21-Transportation cost paid for the purchase of Machinery must be debited to:
A. Transportation cost account
B. Purchases account
C. Machinery account
D. Cash account
22-Error of carry forward will affect:
A. Personal accounts
B. Nominal account
C. Impersonal accounts
D. None of these
23-The credit purchases were wrongly recorded in sales book, the rectification of entry..
A. Increase the net profit by double amount
B. Decrease the net profit by double amount
C. Decrease the net profit
D. Increase the net profit
24-If there is any error in Bank account it will affect:
A. Profit and loss account
B. Trading and profit and loss account
C. Trading account
D. Balance sheet
25-If any expense omitted to be recorded it will:
A. Overstate the profit
B. Understate the profit
C. Both a, b
D. No effect on profit
26- If any income omitted to be recorded it will
A. Overstate the profit
B. On Understate the profit
C. Both Overstate and understate
D. Having no effect on profit
27-Sale of Rs. 1000 to Farid, was credited to his account, it will affect,
A. Sales account
B. Farid account
C. Both a, b .
D. Cash account
A
D
C
A
D
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C
A
B
D
C
D
D
C
C
C
A
C
D
B
C
C
B
D
A
B
B
causing disagreement of trial balance
1) Double posting of transaction from Journal to Ledger
2) Wrong posting or omission or posting one aspect of a transaction in Ledger.
3) Wrong entry or omission of entry in Journal but correct posting in the Ledger.
4) Posting a transaction on the wrong side of an account.
5) Errors in casting special journal.
6) Errors in balancing a Ledger account.
7) Errors or omissions in transferring a Ledger account balance in Trial balance.
8) Casting errors of trial balance.
9) Recording a Ledger account balancing twice in trial balance.
A disagreement in the trial balance can occur due to several reasons, including:
1. Recording Errors: Errors can happen during the recording of transactions, like posting amounts to the wrong accounts, incorrect figures, or forgetting to include certain transactions.
2. Transposition Errors: A mistake made when writing down or entering figures, such as switching digits (e.g., recording 542 as 452).
3. Omission of Entries: If one side of the transaction is posted but the other side is omitted, it can cause an imbalance.
4. Incorrect Addition or Subtraction: Miscalculations when adding or subtracting the trial balance columns.
5. Double Posting: When a transaction is posted more than once, leading to an inflated balance.
6. Incorrect Account Classification: Posting an amount to the wrong type of account (e.g., posting a liability amount under assets).
7. Errors in Journal Entries: Incorrect journal entries where debits or credits are not equal or posted to the wrong accounts.
To resolve the issue, it’s essential to review the entries systematically, check for arithmetic errors, and ensure all transactions are properly recorded and classified.
“Omission” refers to the act of leaving something out or failing to include it. In accounting, an omission means that a transaction or entry was unintentionally left out of the books, leading to incomplete or inaccurate financial records. This can result in an imbalance in the trial balance or financial statements. For example, if an expense or income is not recorded, it can cause discrepancies between the debit and credit sides of the trial balance.
Errors not causing disagreement of trial balance
1) Errors of omission in original books of entry.
2) Wrong amount recorded in original book of accounts.
3) Errors of commission
4) Errors of principal
5) Compensating errors
1) Errors of Commission
In this error transaction is not recorded in the right account; but that is recorded in the wrong account of the same class.
For example, sale of goods to Amir Account is wrongly debited to Aslam account, belong to this class.
There is no mistake in the amount on any side, so the trial balance will agree.
2) Errors of Principle
The mistake happens because of the ignorance of the fundamental principles of accountancy.
a) Treating a capital expenditure as revenue expenditure.
b) Creating inadequate provision in doubtful debts.
c) Providing insufficient depreciation on fixed assets.
For example, repair of furniture wrongly debited to furniture account.
If there is no mistake of amount, trial balance will agree.
3) Errors of Omission
If the transaction has been completely omitted from the original books of accounts, this will not affect the debit and credit side of trial balance so the balance will agree.
4) Compensating Errors
It means that the errors in amount have occurred on the opposite sides of two or more accounts and have cancelled themselves in the net result.
Compensating errors may effect individually effect agreement of trial balance but collectively will never effect the agreement of the trial balance.
Suspense Account
Trial balance is temporarily made to agree with the help of “Suspense Account” because preparation of final account cannot be delayed further.
So amount of difference of the trial balance is recorded on its lessor column under the head suspense account.
Characteristics of Suspense Account
a) It is prepared when there is difference in the totals of the two sides of the trial balance.
b) It is a temporary account to avoid delay in preparing final accounts.
How the errors are rectified
The errors may be detected in any of the following stage.
a) Before preparation of trial balance.
b) After preparation of trial balance but before preparation of Final Accounts.
c) After preparation of Final Accounts.
Division of Errors from the point of view of rectification
A) Errors effecting one Account or one sided error
Transactions have been recorded wrongly on one side (debit or credit), but correctly recorded on the other side.
Generally these errors are
a) Errors of casting
b) Errors of carry forward
c) Errors of posting
d) Omission from trial balance.
B) Errors effecting two or more Accounts or two sided error
These are the errors due to which, two or more accounts are affected. Such errors are as follows.
a) Errors of omission
b) Errors of posting of wrong account
c) Errors of principle
Correction of one sided errors if detected before preparation of trial balance
For rectification of such errors, if detected before the preparation of trial balance, no journal entries are required.
Simply the required amount is put on the debit or credit side of the concerned account where the errors have occurred.
Correction of one sided errors if detected after preparation of trial balance but before preparation of final account
If the trial balance does not agree, it is artificially and temporally made to agree by putting the difference in the Suspense Account.
Suspense account represents the combined effect of the errors that have occurred in the books of account.
If one sided errors are detected after the preparation of the trial balance but before the preparation of the Final Accounts, they are always corrected with the help of the Journal Entries.
There must be suspense account in the rectifying Journal entry.
Correction of two sided errors if detected after preparation of trial balance but before preparation of final account
There will be no suspense account in the rectifying journal entry, if the error does not cause any discrepancy in the trial balance and there will be suspense account in rectifying journal entry, if any error causes disagreement in the trial balance.
These errors can be
a) Errors of omission
b) Errors of posting of wrong account
c) Errors of principle
To rectify such errors, the following three aspects should be noted
a) What should have been the correct entry?
b) What entry has already been passed?
c) What should be the rectifying Journal Entry?
Correct entry= Wrong entry + Rectifying entry
Effects of errors on the final accounts or the financial statements
Only those errors affect the profit of the business which is related to the trading and Profit and Loss account.
So, only mistakes in the revenue accounts and expense accounts will affect the profit of the business.
How the mistakes or errors and their rectification affect the profit?
The following points are helpful to understand it.
a) If any expense account or revenue account is wrongly debited, the profit will decrease and when it is rectified profit will increase.
b) If any expense account or revenue account is wrongly credited, the profit will increase and when it is rectified profit will adjusted by deducted the amount from the profit.
