Page 191 - DCOM101_FINANCIAL_ACCOUNTING_I

Unit 14: Rectification of Errors

(f) Discount received from Mittal & Co. ` 200 had not been posted to Discount a/c. Pass entries Notes

necessary to correct the errors and prepare the suspense account. Also find out what effect

these errors would have on the profit for the year ending 31st Dec, 2006.
Solution.
Journal Entries to rectify the errors
Dr. Cr.
S.No. Particulars L.F. Amount Amount
(`) (`)
(a) B Dr. 120
To A 120
Error in B’s a/c Corrected.
(b) Postage a/c Dr. 50
To Suspense a/c 50
Postage a/c Omission corrected.
(c) Suspense a/c Dr. 91
To Sales a/c 91
Sales Day Book balance
Wrongly carried forward Hence corrected 878 - 787
(d) Motor licence a/c Dr. 60
To Motor Car a/c 60
Error in Motor Car a/c corrected.
(e) Suspense a/c Dr. 1080
To Partner’s Current a/c 540
To Bank Interest a/c 540
Error in Bank Interest a/c corrected and partners’ a/c
credited.
(f) Suspense a/c Dr. 200
To Discount a/c 200
Omission in Discount a/c corrected.

Suspense A/c
Dr. Cr.
S.No. Particulars J.F. Amount S.No. Particulars J.F. Amount
` `
(c) To Sales a/c 91 (b) By Postage a/c 50
(e) To Partners’ current a/c 540 By Balance 1321
To Bank Int. a/c 540
To Discount a/c
(f) 200
1371 1371

Effects on the profit for the year 2006:
(a) No effect.
(b) Net profit is higher by ` 50.

(c) Gross profit and Net profit is reduced by ` 91.

(d) Net profit is higher by ` 60.

(e) Net Profit is reduced by ` 540.
(f) Net profit is lower by ` 200.

The total effect of all errors on profi t is ` 721.00 i.e. profit is lower to the extent of ` 721 and if

corrected, Net profit increase by ` 721.

LOVELY PROFESSIONAL UNIVERSITY 185