Page 134 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Though the error is of principle, in the above case Purchases A/c is unnecessarily debited and
Building A/c is wrongly left out. In order to rectify the error the following entry (correcting the
error) is to be passed:
Journal Entry for Correction (Rectification)
Dr. Cr.
S. No. Particulars L.F. ( ) ( )
1. Building A/c Dr. 2,00,000
To Purchases A/c 2,00,000
(Error in Building A/c and Purchases A/c rectified)

Journal Entry already passed which was a wrong entry
Dr. Cr.
S. No. Particulars L.F. ( ) ( )
1. Purchases A/c Dr. 2,00,000
To Cash/Creditor A/c 2,00,000
(Building Purchased)

Correct entry required to pass
Dr. Cr.
S. No. Particulars L.F. ( ) ( )
1. Building A/c Dr. 2,00,000
To Cash/Creditor A/c 2,00,000
(Buildings Purchased)

Thus, we see that if the error affects both the accounts, then it can be rectified by passing a journal
entry as explained above.

Did u know? What is suspense account?
Sometimes, it is not possible to point out errors easily, and then the difference is put to an
account, known as suspense account. Suspense A/c is shown in the trial balance. As and when
Errors are located, the same is debited or credited for rectifying the error and the other account
which is credited or debited is the suspense account. Thus, the suspense account is automatically
closed.
Illustration 4: Rectify the following Errors:
(a) A sale of goods to Raja Ram for 2500 was passed through the Purchases book.

(b) Salary 800 paid to Hari Babu was wrongly debited to his personal account.
(c) Furniture purchased on credit from Mohan Singh for 1000 was entered in the
Purchases book.

(d) 5000 spent on the extension of building was debited to the buildings repairs
account.
(e) Goods returned by Mani Ram 1200 were entered in Returns outward book.

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