Rectification of Errors – Definition, Types & Examples

Rectification of errors:

It is the process of revising mistakes and making amendments to the accounting records. Rectification of Errors is basically of two kinds:

1. Errors not affecting Trial Balance
2. Errors affecting Trial Balance 

Errors not affecting Trial balance are the errors that are not affecting Trial balance and can be rectified by passing a rectification journal entry. While other errors are errors that affect one account of trial balance, which cannot be rectified by passing journal entries. However, a journal entry can be passed only by opening a Suspense account.

ERRORS NOT AFFECTING TRIAL BALANCE:

These are the errors that affect two or more accounts of the trial balance and are therefore called two-sided errors. These errors can occur on any side of the account, either Debit or credit, which will be rectified by passing a journal entry.
Reversing the impact of the wrong entry on the debit and credit side and then passing the correct debit and credit entry, can easily rectify the errors.

For example:

Credit sales to A of Rs. 20,000 were not recorded in the sales book. In order to rectify such an error, a journal entry would be passed debiting A’s account with Rs. 20,000 and crediting Sales Account with Rs. 20,000.

The Journal Entry to be passed for the above rectification shall be:
A a/c    Dr.  20,000
To Sales Account Cr.  20,000

ERRORS AFFECTING TRIAL BALANCE:

Errors that affect the trial balance occurs on any one side of the trial balance, and such errors can only be rectified by passing a journal entry along with the opening of a suspense account. These errors are also known as one-sided errors, as only one side of the account (either debit or credit) is affected by these errors. 

The process of rectification is as follows:

1. Classify the account having an error.
2. Check the shortage or excess in the account.
3. If there is an excess credit and shortage in debit, then the difference should be debited from the account with the difference amount.
4. If the difference is found due to excess debit and shortage of credit, then credit the account with the difference.
5. At last, the suspense account is debited or credited.

For example:

Depreciation is written off on machinery, Rs.10,000 was not recorded in the Machinery account. In order to rectify the said entry, a journal entry would be passed by debiting the Suspense account with Rs. 10,000 and crediting Machinery account with Rs. 10,000.

Journal Entry to be passed for the above rectification shall be:

Suspense a/c    Dr.  10,000
To Machinery Account Cr.  10,000

TYPES OF ERRORS:

1. Errors of omission: This is an error where a transaction is completely omitted from the accounting records. As the debits and credits for the transaction would always balance, omission of any transaction will never be detected. This kind of error mostly happens when the transaction is not recorded in the books of the original entry.
2. Errors of commission: This is an error when the entries are made for the correct amount and at the appropriate side (debit or credit), but one or more entries are made to the wrong account. For example, if printing costs are incorrectly debited to the courier account (both expense accounts). This will not affect the totals.
3. Errors of principle: This is an error where the entries are made for the correct amount and at the appropriate side (i.e., debit or credit), but with the wrong type of account is used. For example, if printing costs (an expense account), are debited to stock (an asset account). This will not affect the totals.
4. Compensating errors: As indicated by the name, compensating errors are those errors which naturally compensate each other.