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    Rectification of Errors

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    shubhro gomes
    There are three steps to error management: prevention, detection, and rectification of errors. Errors can be unintentional due to ignorance or carelessness. Detection methods include classifying errors as two-sided or one-sided based on whether they affect the trial balance agreement. Rectification depends on the error type and stage - before, during, or after account preparation - and may require journal entries, direct ledger posting, or replacing nominal accounts with a profit and loss adjustment account when rectifying past periods. Suspense accounts can be used to balance rectification entries affecting the trial balance.

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    Rectification of Errors

    Uploaded by

    shubhro gomes
    13K views17 pages
    There are three steps to error management: prevention, detection, and rectification of errors. Errors can be unintentional due to ignorance or carelessness. Detection methods include classifying errors as two-sided or one-sided based on whether they affect the trial balance agreement. Rectification depends on the error type and stage - before, during, or after account preparation - and may require journal entries, direct ledger posting, or replacing nominal accounts with a profit and loss adjustment account when rectifying past periods. Suspense accounts can be used to balance rectification entries affecting the trial balance.

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    how to rectify errors in accounting

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    There are three steps to error management: prevention, detection, and rectification of errors. Errors can be unintentional due to ignorance or carelessness. Detection methods include classifying errors as two-sided or one-sided based on whether they affect the trial balance agreement. Rectification depends on the error type and stage - before, during, or after account preparation - and may require journal entries, direct ledger posting, or replacing nominal accounts with a profit and loss adjustment account when rectifying past periods. Suspense accounts can be used to balance rectification entries affecting the trial balance.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    13K views17 pages

    Rectification of Errors

    Uploaded by

    shubhro gomes
    There are three steps to error management: prevention, detection, and rectification of errors. Errors can be unintentional due to ignorance or carelessness. Detection methods include classifying errors as two-sided or one-sided based on whether they affect the trial balance agreement. Rectification depends on the error type and stage - before, during, or after account preparation - and may require journal entries, direct ledger posting, or replacing nominal accounts with a profit and loss adjustment account when rectifying past periods. Suspense accounts can be used to balance rectification entries affecting the trial balance.

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    Download as PPT, PDF, TXT or read online from Scribd
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    of 17

    ERROR MANAGEMENT

    There are three steps in error


    management:
    • Prevention of errors;
    • Detection of errors; and
    • Rectification of errors.
    TYPES OF ERRORS

    • Errors of Omission
    • Errors of Commission
    • Errors of Principle
    • Compensating Errors
    PREVENTION OF ERRORS
    • Two principal reasons unintentional
    errors:
    (i) Ignorance
    (ii) Carelessness
    • Development of internal control
    system
    DETECTION OF ERRORS…
    • Classification of errors
    (a) Two-sided errors:
    Errors which do not affect the
    agreement of Trial Balance
    (b) One-sided errors: Errors which
    affect the agreement of Trial
    Balance
    DETECTION OF ERRORS…

    • Types of Trial Balance:


    (i) Trial Balance
    (ii) Adjusted Trial Balance
    (iii) Post Trial Balance
    • Locate errors
    Rectification
    on the basis of
    types of errors:

    • Rectification of two-sided errors.

    • Rectification of one-sided errors.


    Rectification of two-sided errors

    These errors do not affect the agreement of


    Trial Balance and are rectified by passing
    journal entries which are known as
    Rectification Entries. Thus, Rectification
    entries are entries passed to correct the
    errors committed and set right the
    accounting records.
    Rectification of one-sided errors

    • These errors which affect the agreement


    of Trial Balance, e.g.
    undercasting/overcasting, non-inclusion
    of an account, wrong posting, etc. These
    errors can be corrected by entering the
    correct amount in the affected
    account/place.
    Stages of Rectification
    vis a vis Location of errors
    Stage Journal Ledger Trial Final
    Balance A/Cs &
    B/S
    I

    II

    III
    Steps in the identification of
    rectification entry
    – Identify what has been done –
    WRONG ENTRY
    – Identify what had to be done –
    CORRECT ENTRY
    – Combine REVERSAL OF WRONG
    ENTRY with correct entry
    – RESIDUAL will help to determine the
    rectification entry
    Stage I: Before preparation of
    Trial Balance
    • In case both the sides of the residual
    agree, i.e. total debits = total credits –
    It is in the form of a journal entry –
    The RECTIFICATION ENTRY
    • In case both the sides do not agree –
    DIRECT LEDGER POSTING be
    made (rectification of one-sided
    errors)
    Stage II: After preparation of Trial
    Balance but before preparation of
    Final Accounts and Balance Sheet
    • If both the sides agree, the Rectification
    entry for the Stage I will be the
    rectification entry for the Stage II.
    • If both the sides do not agree,
    Rectification entry has to be passed by
    taking SUSPENSE ACCOUNT as the
    balancing figure.
    Stage III: After preparation of Final
    Accounts and Balance Sheet, i.e.
    rectification in the next or a future
    accounting period
    • First of all, it should be noted that all
    accounts related to expenses, losses,
    incomes and gains, i.e. all NOMINAL
    ACCOUNTS have been closed at the
    end of the accounting period.
    Stage III: After preparation of Final
    Accounts and Balance Sheet, i.e.
    rectification in the next or a future
    accounting period
    • If any nominal account appears in the
    residual, then it should be replaced by
    PROFIT & LOSS ADJUSTMENT ACCOUNT.
    • Thereafter, if both the sides agree, it will be
    the rectification entry for the Stage III.
    • If both the sides do not agree, Rectification
    entry has to be passed by taking SUSPENSE
    ACCOUNT as the balancing figure.
    RECTIFICATION SEQUENCE
    RECTIFICATION FOR STAGE I:
    Agrees: Journal
    Disagrees: Ledger posting

    RECTIFICATION FOR STAGE II:


    Consider Stage I entry and in case it
    Disagrees: Suspense A/C as bal.fig.

    RECTIFICATION FOR STAGE III:


    Consider Stage II entry and
    Replace all Nominal A/Cs with P/L Adjustment A/C
    ACCOUNTS RELATED TO
    RECTIFICATION
    • SUSPENSE ACCOUNT: Difference in Books
    Accounts
    • PROFIT & LOSS ADJUSTMENT ACCOUNT:
    It is a prior-period item transferred to Profit &
    Loss Account in the year when the error is
    rectified during stage III. It discloses the
    error(s) effect on profit or loss. Profit & Loss
    Adjustment Account (Dr.) will indicate under-
    statement of loss or over-statement of profit
    and vice versa.
    THANK YOU

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