Effect of Errors on Profit

Not every rectification entry affects the Net Profit for the year — this depends entirely on whether NOMINAL accounts (expenses, incomes, gains, losses) are involved:

• A rectification entry that debits or credits ONLY Personal or Real accounts (debtors, creditors, assets, capital, Suspense A/c) has NO effect on Net Profit — it only affects figures that ultimately appear in the Balance Sheet.
• A rectification entry that debits or credits a NOMINAL account (an expense, income, or a Trading/Profit and Loss Account item) DOES affect Net Profit — increasing it if a nominal account is credited (an expense reduced, or an income increased) and decreasing it if a nominal account is debited (an expense increased, or an income reduced). …