Chapter # 6

Correction of Errors

Principles of Accounting – B.Com Part – I

Sameer Hussain

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Correction of Errors
Chapter # 6

WHAT THE EXAMINER USUALLY ASK?

 Types of errors:
o Error of omission.
o Error of commission.
o Error of principle.
o Compensating error.
o Error of original entry.
o Reversal of entries
 Rectification of errors discovered before closing accounts.
 Rectification of errors discovered after closing accounts.

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 Correction of Errors
Chapter # 6

Chapter # 6
CORRECTION OF ERRORS
CORRECTION OF ERRORS
Correcting entries are made to correct the error in the books of account. There are two types of
errors: Errors where the trial balance still balances. Error where trial balance does not balances.

ERRORS WHERE TRIAL BALANCE STILL BALANCES

A transaction has been completely omitted from the accounting
Error of Omission: records. For example, a cash purchase of merchandise of Rs.10,000
was not recorded.

A transaction has been recorded in the wrong account. For example,

Error of Commission: salaries expenses of Rs.3,000 has been debited to wages expenses
account in error.

A transaction has conceptually been recorded incorrectly. For example,

Error of Principle: building purchase of Rs.100,000 has been debited to the repair
expense account rather than building account.

Two different errors have been made which cancel each other out. For
example, rent expense of Rs.12,000 has been debited to rent expense
Compensating Error:
account as Rs.14,000 and a casting error on the sales account has
resulted in sales being overstated by Rs.2,000.

Error of Original The correct double entry has been made but with the wrong amount.
Entry: For example, cash sale of Rs.3,200 has been recorded as Rs.2,300.

The correct amounts have been posted to the correct accounts but on
Reversal of Entries: the wrong side. For example, cash sales of Rs.20,000 has been debited
to sales and credited to cash.

ERRORS WHERE TRIAL BALANCE DOES NOT BALANCES

 A debit entry has been made but no credit entry or vice versa.
 Debit entry is made with different amount and credit entry is made with different
amount.
 Debit and credit both are made on the same side.
If the debits of trial balance do not agree with the credits of trial balance, then suspense account
is used to correct the difference.

STEPS TO CORRECT ERROR

 What was the double entry?
 What should the double entry have been?
 Correcting entry.

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Correction of Errors
Chapter # 6

examples
Error of Omission: A cash purchase of merchandise of Rs.10,000 was not recorded.

What should the double

What was the double entry? Correcting entry
entry have been?
Purchases 10,000 Dr. Purchases 10,000 Dr.
No entry
Cash 10,000 Cr. Cash 10,000 Cr.

Salaries expenses of Rs.3,000 has been debited to wages expenses

Error of Commission:
account in error.

What should the double

What was the double entry? Correcting entry
entry have been?
Wages expenses 3,000 Dr. Salaries expenses 3,000 Dr. Salaries expenses 3,000 Dr.
Cash 3,000 Cr. Cash 3,000 Cr. Wages expenses 3,000 Cr.

Building purchase of Rs.100,000 has been debited to the repair

Error of Principle:
expense account rather than building account.

What should the double

What was the double entry? Correcting entry
entry have been?
Repair expenses 100,000 Dr. Building 100,000 Dr. Building 100,000 Dr.
Cash 100,000 Cr. Cash 100,000 Cr. Repairs expense 100,000 Cr.

Rent expense of Rs.12,000 has been debited to rent expense account as

Compensating Error: Rs.14,000 and a casting error on the sales account has resulted in sales
being overstated by Rs.2,000.

What should the double

What was the double entry? Correcting entry
entry have been?
Rent expenses 14,000 Dr. Rent expenses 12,000 Dr.
Cash 12,000 Cr. Cash 12,000 Cr.
Sales 2,000 Dr.
Rent expenses 2,000 Cr.
Cash 10,000 Dr. Cash 10,000 Dr.
Sales 12,000 Cr. Sales 10,000 Cr.

Error of Original Cash sale of Rs.3,200 has been recorded as Rs.2,300.

Entry:

What should the double

What was the double entry? Correcting entry
entry have been?
Cash 2,300 Dr. Cash 3,200 Dr. Cash 900 Dr.
Sales 2,300 Cr. Sales 3,200 Cr. Sales 900 Cr.

Reversal of Entries: Cash sales of Rs.20,000 has been debited to sales and credited to cash.

What should the double

What was the double entry? Correcting entry
entry have been?
Cash 20,000 Dr. Sales 20,000 Dr. Cash 40,000 Dr.
Sales 20,000 Cr. Cash 20,000 Cr. Sales 40,000 Cr.

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 Correction of Errors
Chapter # 6

ILLUSTRATION # 1: (Errors Discovered in the Same Year)

1997 Regular & Private – BIEK
Pass Journal Entries with full narration to rectify the following errors before closing the
accounts:-
(a) Purchase of an office table amounting to Rs.1,600 has been entered as office equipment.
(b) Sales return of Rs.550 from a customer has been debited to sales discount account.
(c) Withdrawal by the proprietor of Rs.500 has been debited to General expense account.
(d) Payment to technicians for installation of computer Rs.1,500 has been debited to repairs
Expense account.
(e) Receipt of Rs.600 from Rana and Company, a customer, has been recorded in the
account of Rani and Company.
(f) Old office furniture sold for Rs.750 has been recorded as Rs.720 in furniture account
wrongly.
(g) Machinery repairs payment Rs.200 has been debited to Machinery account.
(h) Construction as addition of office building for Rs.50,000 was wrongly debited to building
repairs account.
(i) Purchase of stationary for Rs.1,200 has been recorded as purchases.

SOLUTION # 1:
M/S. _________
CORRECTING ENTRIES
Date Particulars P/R Debit Credit
1 Office furniture 1,600
Office equipment 1,600
(To correct the office equipment account)
2 Sales return and allowances 550
Sales discount 550
(To correct the sales discount account)
3 Drawings 500
General expense 500
(To correct the general expense account)
4 Equipment 1,500
Repairs expense 1,500
(To correct the repairs expense account)
5 Accounts receivable (Rani and Company) 600
Accounts receivable (Rana and Company) 600
(To correct the customer receivable account)
6 Cash 30
Office furniture 30
(To correct the office furniture account)
7 Repairs expense 200
Machinery 200
(To correct the machinery account)
8 Building 50,000
Repairs expense 50,000
(To correct the repairs expense account)
9 Supplies 1,200
Purchases 1,200
(To correct the purchases account)

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Correction of Errors
Chapter # 6

ILLUSTRATION # 2: (Errors Discovered in the Next Year)

2008 Regular – UOK
The following errors were made during the year 2007 & were discovered in 2008:
(a) Purchase of equipment for Rs.250,000 was debited to repairs expense account in error.
Because of this error, depreciation on equipment Rs.20,000 could not be recorded.
(b) Credit purchase of merchandise of Rs.170,000 was not recorded in 2007 although the
goods were received and included in the ending inventory of 2007.
(c) Merchandise of Rs.180,000 purchased in the month of December 2007 & included in the
ending inventory of 2007, but the purchase was recorded on January 5, 2008.
(d) Ending inventory of 2007 was understated by Rs.5,000.
REQUIRED
Pass correcting entries in General Journal entries in the year 2008.

SOLUTION # 2:
M/S. _________
CORRECTING ENTRIES
Date Particulars P/R Debit Credit
1 Equipment 250,000
Profit & loss account 250,000
(To correct the purchase of equipment)
2 Profit & loss account 20,000
Allowance for depreciation – Equipment 20,000
(To correct the depreciation on equipment)
3 Profit & loss account 170,000
Accounts payable 170,000
(To correct the purchase of merchandise on
account)
4 Profit & loss account 180,000
Purchases 180,000
(To correct the purchases recorded in 2008)
5 Merchandise inventory 5,000
Profit & loss account 5,000
(To correct the overstatement of ending inventory)

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 Correction of Errors
Chapter # 6

Practice questions
Question # 1: 1991 Regular & Private – UOK
The following errors were made during the current year and were discovered before closing the
books of account:
(1) Depreciation Expense on building was overcharged by Rs.1,500.
(2) Purchase of Merchandise of Rs.3,000 was debited to Office Supplies.
(3) Accrued Advertising Expense of Rs.4,500 was overlooked.
(4) Sales Returns of Rs.6,000 were charged to Purchase account.
(5) Accrued Commission Income of Rs.7,500 was overlooked.
REQUIRED
Rectifying Entries in General Journal.

Question # 2: 1997 Regular – UOK

Following errors were made by the bookkeeper of Munshi & Co. for the month of Nov. 1997:-
(1) Sale of old furniture Rs.1,000 has been entered as sale of merchandise.
(2) Received a cheque from Arshad & Co. for Rs.4,444/= but wrongly posted to Rashid & Co.
(3) Usman, a customer, paid Rs.4,500 but entered in his account as Rs.5,400.
(4) Earned and received Rs.750 as commission but recorded as Rs.705.
(5) The proprietor has taken away merchandise worth Rs.500 for his personal use but the
entry was entirely omitted.
REQUIRED
Pass journal entries to correct the above errors on 30th November, 1997.

Question # 3: 2008 Regular – UOK

The following errors/omissions were made during 2007 & were discovered before closing the
books of accounts:
(i) Sales return of Rs.16,000 was charged to purchase.
(ii) Outstanding advertising expense were overlooked Rs.45,000.
(iii) Rs.150,000 spent for extension of building was debited to building repairs account.
(iv) Prepaid salary of Rs.10,000 was included in salary expense account.
(v) Accrued rent income of Rs.15,000 was overlooked.
REQUIRED
Pass rectifying entries in General Journal.

Question # 4: 2011 Regular – UOK

The following errors were made during the current year and were discovered before closing the
books of accounts:
1) Accrued advertising expense of Rs.5,000 was overlooked.
2) Return of goods of Rs.1,500 by Shakeel was entered in error in Raheel’s account.
3) Cash drawings of Rs.4,000 was credited to the bank of the cash book.
4) Repairs to machinery of Rs.3,000 was charged to machinery account.
REQUIRED
Rectify entries in General Journal.

Question # 5: 2012 Regular – UOK

The following errors were made during 2011 & were discovered before closing of the books of
accounts of Mansoor Co.:
(i) Sales return of Rs.5,000 was charged to purchase account.
(ii) Rs.75,000 spent for the extension of building was debited to building repairs account.
(iii) Outstanding advertising expense was overlooked Rs.20,000.
(iv) Prepaid salary of Rs.48,000 was included in salary expense account.
REQUIRED
Pass rectifying entries in General Journal.

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Correction of Errors
Chapter # 6
Question # 6: 2012 Private – UOK
The following errors/omissions were made during 2011 & were discovered before closing of
books of accounts:
1. Purchase return of Rs.20,000 was charged to sales return.
2. Outstanding advertising expenses were overlooked Rs.60,000.
3. Rs.50,000 spent for building repairs the extension of building was debited to building a/c.
4. Prepaid salary of Rs.15,000 was included in salary expense account.
5. Accrued rent income of Rs.25,000 was overlooked.
REQUIRED
Pass rectifying entries in General Journal.

Question # 7: 1991 Regular & Private – UOK

The following errors were made during 1989 and were discovered during 1990:
(1) Ending Inventory was overstated by Rs.9,000.
(2) Merchandise of Rs.8,000 purchased in the month of December 1989 and included in the
Ending Inventory of 1989, but the Purchase was recorded on January 21, 1990 in the
Purchase Journal of 1990.
(3) Credit Purchase of Rs.7,000 was not recorded in 1989 although the goods were received
and included in the Inventory of 1989.
(4) Cost of machine amounting to Rs.25,000 was debited to Repairs Expense account in
error. Because of this error Depreciation of Rs.5,000 on machine could not be recorded.
REQUIRED
Correcting Entries in General Journal that are required in 1990.

Question # 8: 2011 Regular – UOK

The following errors were made during the year 2009 and were discovered during 2010:
1) Ending inventory was overstated by Rs.10,000.
2) Credit purchase of Rs.8,000 was not recorded in 2009 although goods were received and
included in the inventory of 2009.
3) Additional investment by owner of Rs.100,000 was credited to sales account.
4) Goods taken out for owner’s use Rs.7,000 was debited to general expenses account.
REQUIRED
Rectify entries in General Journal.

Question # 9: 2008 Private – UOK

The book keeper of Amen Company prepared the income statement of the company which
revealed:
Cost of goods sold 200,000
Net income 80,000
The company’s auditor detected the following errors:
(1) Ending merchandise inventory was overstated by Rs.6,000.
(2) Sales return of Rs.2,000 were charged to purchase.
(3) Sales included Rs.7,000 of advance from customers.
(4) A sale of equipment for Rs.3,000 was credited to sales account, book value of equipment
was Rs.4,000.
(5) Office supplies of Rs.200 were on hand whereas the office supplies showed a debit
balance of Rs.1,000.
REQUIRED
(i) Prepare a statement showing the amount that should be added to or deducted from cost
of goods sold and net income so as to arrive at their correct figures.
(ii) Assuming the books have not been closed, give the necessary correcting entries.

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