Rectification of Errors Affecting Trial Balance

Rectification of Errors Affecting Trial Balance

Errors that affect only one account — one-sided errors — cause the trial balance to disagree. These errors do not affect both sides of a transaction; they leave one account either over-stated or under-stated while the other account is correctly recorded. Because the trial balance does not tally, the accountant cannot simply pass a journal entry that debits and credits two ledger accounts — one of the two accounts affected by the error is unknown or missing. The solution is to use a Suspense Account as a temporary placeholder.

Examples of such one-sided errors include:

• Error of casting (adding up a subsidiary book incorrectly)
• Error of carrying forward (wrong total carried to the next page)
• Error of balancing (wrong balance struck in an account)
• Posting to the correct account but with the wrong amount
• Posting to the correct account but on the wrong side
• Posting to the wrong side with the wrong amount
• Omitting to show an account in the trial balance

Correction Without a Journal Entry

If an error is discovered in a book of original entry before it is posted to the ledger, it can be corrected by crossing out the wrong amount with a single line, writing the correct amount above it, and initialling the correction. Similarly, if an amount has been posted to the correct ledger account but is wrong, the same method can be used — or an additional posting for the difference can be made, with an explanatory note in the particulars column.

A better method is to note the correction on the appropriate side to neutralise the effect of the error.

Example — Short credit to Shyam's account by ₹190

Shyam's account was credited with ₹190 less than it should have been. The correction is made by an additional entry of ₹190 on the credit side of his account.

Example — Purchases book undercast by ₹1,000

The purchases book was totalled ₹1,000 less than the correct total. This affects the Purchases Account (debit side), because the total of the purchases book is posted there. The correction is an additional debit of ₹1,000.

The Suspense Account

When the trial balance does not tally due to one or more one-sided errors, the accountant cannot delay the preparation of financial statements. The difference in the trial balance is temporarily placed in a Suspense Account — the shorter side of the trial balance is given this amount to make the totals agree. This is a temporary measure; the suspense account is not a permanent account and does not belong to any particular category (asset, liability, income, or expense).

How the suspense account arises — an example

Consider a sales book with the following entries:

If the sale to Diwakar and Sons (₹15,000) was not posted to his account, the ledger accounts will show:

Ashok Traders Account

Bimal Service Centre's Account

Chopra Enterprises Account

Sales Account (Credit side)

The trial balance prepared from these balances will show:

• Credit column total: ₹50,000 (from Sales Account)
• Debit column total: ₹35,000 (₹20,000 + ₹10,000 + ₹5,000)
• Difference: ₹15,000

This difference of ₹15,000 is temporarily placed in the Suspense Account (on the debit side of the trial balance) to make the totals agree. Later, when the error is located — the omission of posting to Diwakar and Sons' account — the suspense account is cleared.

Rectifying One-Sided Errors Using the Suspense Account

The following steps are taken:

1. Identify the account affected due to the error.
2. Ascertain the amount of excess debit/credit or short debit/credit in the affected account.
3. If the error has resulted in excess debit or short credit in the affected account, credit the account with the amount of excess debit or short credit.
4. If the error has resulted in excess credit or short debit in the affected account, debit the account with the amount of excess credit or short debit.
5. Complete the journal entry by debiting or crediting the Suspense Account as the other account affected.

(a) Credit sales to Mohan ₹10,000 were not posted to his account

This is an error of partial omission — the posting from the sales book was incomplete.

• Wrong effect: Mohan's A/c Dr. Nil; Sales A/c Cr. ₹10,000
• Correct effect: Mohan's A/c Dr. ₹10,000; Sales A/c Cr. ₹10,000
• Effect of error: Mohan's account has a short debit of ₹10,000

Rectification entry:

(b) Credit sales to Mohan ₹10,000 were posted to his account as ₹7,000

This is an error of commission — the posting was made but with the wrong amount.

• Wrong effect: Mohan's A/c Dr. ₹7,000; Sales A/c Cr. ₹10,000
• Correct effect: Mohan's A/c Dr. ₹10,000; Sales A/c Cr. ₹10,000
• Effect of error: Mohan's account has a short debit of ₹3,000

Rectification entry:

(c) Credit sales to Mohan ₹10,000 were posted to his account as ₹12,000

This is also an error of commission.

• Wrong effect: Mohan's A/c Dr. ₹12,000; Sales A/c Cr. ₹10,000
• Correct effect: Mohan's A/c Dr. ₹10,000; Sales A/c Cr. ₹10,000
• Effect of error: Mohan's account has an excess debit of ₹2,000

Rectification entry:

(d) Purchases book overcast by ₹1,000

Errors in casting of subsidiary books affect only those accounts where the totals of the subsidiary books are posted. The accounts of individual parties (suppliers) are not affected. …