Accounting professionals prepare trial balances to examine the accuracy of accounts. If overall debit balances do not agree with the total of credit equilibriums, it is a well-defined sign that specific errors have actually been committed while tape-recording the deals in the books of initial entrance or subsidiary publications. It is our utmost task to find these mistakes as well as correct them, just then we must proceed with preparing the last accounts. We also understand that all kinds of mistakes are not revealed by trial balance as some of the errors do not affect the total amount of trial balance. So these can not be located with the help of test equilibrium. An accountant must spend his energy to find both types of errors and rectify them before preparing a trading, profit, and loss account as well as a balance sheet. Because if these are prepared before rectification these will certainly not provide us the right outcome and also earnings and also loss revealed by them, will not be the real earnings or loss.
All errors of audit treatment can be classified as adheres to:
- Errors of Concept
When a purchase is recorded versus the fundamental principles of accounting, it is an error of principle. As an example, if profits expense is dealt with as capital expenditure or the other way around.
- Clerical Errors
These errors can once more be sub-divided as adheres to:
( i) Errors of omission
When a deal is either entirely or partially not videotaped in the books, it is an error of omission. It might be with regard to noninclusion to get in a deal in the books of initial access or when it comes to noninclusion to post a transaction from the books of initial entry to the account worried in the ledger.
( ii) Errors of commission
When an entry is inaccurately recorded either entirely or partially incorrect publishing, calculation, spreading, or harmonizing. Several of the errors of payment impact the trial balance whereas others do not. Errors impacting the trial equilibrium can be revealed by preparing a trial balance.
( iii) Compensating errors
Occasionally an error is counter-balanced by an additional error in such a way that it is not divulged by the test balance. Such mistakes are called making up mistakes.
From the perspective of rectification of the errors, these can be divided into two groups:
( a) Mistakes affecting one account only, and also
( b) Errors impacting two or even more accounts.
Errors affecting one account
Errors which impact can be:
( a) Casting errors;
( b) mistake of posting;
( c) continue;
( d) harmonizing; and
( e) omission from test balance.
Such mistakes should, first off, lie and also be fixed. These are remedied either with the help of a journal entry or by providing an explanatory note in the account concerned.
Stages of correction of bookkeeping errors
All types of mistakes in accounts can be rectified at two stages:
( i) prior to the prep work of the final accounts; and
( ii) after the prep work of the last accounts.
Mistakes rectified within the accountancy period
The correct technique of improvement of a mistake is to pass journal entrance in such a way that it corrects the mistake that has actually been committed and also provides effect to the entry that needs to have been passed. But while errors are being remedied prior to the prep work of last accounts, in specific instances the adjustment can not be done with the aid of journal entry due to the fact that the errors have actually been such. Usually, the treatment of rectification, if being done, before the preparation of last accounts is as adheres to:
( a) Adjustment of errors influencing one side of one account Such errors do not allow the trial equilibrium to concur as they impact only one side of one account so these can not be corrected with the help of journal entrance if modification is required prior to the preparation of final accounts. So the required amount is placed on the debit or credit rating side of the concerned account, as the instance perhaps. As an example:
( i) Sales publication undercast by Rs. 500 in the month of January. The error is only in the sales account, in order to fix the sales account, we need to tape it on the credit report side of the sales account ‘By under spreading of. sales book for the month of January Rs. 500″. I’ Description: As sales publication was undercast by Rs. 500, it means all accounts other than sales account are correct, just credit scores equilibrium of sales account is much less by Rs. 500. So Rs. 500 have been attributed to the sales account.
( ii) Discount rate permitted to Marshall Rs. 50, not uploaded to discount account. It means that the quantity of Rs. 50 which ought to have been debited in the discount account has actually not been debited, so the debit side of the discount rate account has actually been minimized by the exact same quantity. We ought to debit Rs. 50 in discount rate account currently, which was left out formerly and the discount account shall be dealt with.
( iii) Goods marketed to X were wrongly debited in the sales account. This mistake is impacting just the sales account as the quantity which should have been published on the credit report side has been wrongly put on the debit side of the exact same account. For fixing it, we ought to put double the quantity of purchase on the credit history side of the sales account by writing “By sales to X incorrectly debited formerly.”
(iv) Quantity of Rs. 500 paid to Y, not debited to his personal account. This mistake of impacting the personal account of Y only and also its debit side is less by Rs. 500 because of omission to upload the quantity paid. We will currently create on its debit side. “To money (omitted to be published) Rs. 500.