Page 139 - DMGT104_FINANCIAL_ACCOUNTING

Unit 7: Trial Balance

Solution: Notes
Journal Entries to rectify the errors
Dr. Cr.
S. No. Particulars L.F. Amount Amount
( ) ( )
(i) Buildings A/c Dr. 2000
To Repairs A/c 2000
(Repairs A/c was wrongly debited in place of buildings A/c,
hence rectified.)
(ii) Ram & Co. Dr. 200
To Discount A/c 200
(Rectification of error in discount A/c in place of Ram & co.)
(iii) Proprietor’s Drawings A/c Dr. 500
To Travelling Expenses A/c 500
(Error in travelling expenses A/c rectified.)
(iv) Sales returns A/c Dr. 100
To Ram 100
(Goods returned by Ram were not entered, hence rectified.)
(v) I. Tota Ram Dr. 100
To Kartar Chand 100
(Error in Tota Ram A/c rectified.)
II. Bank A/c Dr. 100
To Cash A/c 100
(Error in Cash A/c rectified.)
(vi) Machinery A/c Dr. 500
To Wages A/c 500
(Error in wages A/c rectified.)

Effects of errors on the profits and losses (profit and loss A/c and Balance Sheet) (Final Accounts):
If the error/errors are there or committed, the effect of such errors would be either decrease or
increase in the Gross Profit/Net Profit. The Profit/Loss depicted by profit and loss account
would not be correct, so it is necessary to rectify the errors and arrive at the correct amount of
profit/loss of the period. Similarly, financial position as given by the Balance Sheet would also
not be correct if some errors are there/committed. Again, it is also must to rectify the errors at
the earliest, so that Balance Sheet can depict a true and fair view of the business. The following
illustrations would clarify the above points.
Illustration 10: On 31st Dec, 2006 the Trial balance of Sunil & Co., balanced after inserting a
suspense account in the nominal ledger. In the course of audit, the following facts were
discovered:

(a) 120 received from A had been posted to B’s account in the sales ledger.
(b) 50 paid for postage stamps had been entered correctly in the cash book, but not posted.
(c) In casting the Sales Day Book 878 were carried forward as 787.

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