Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 5 Errors and their Rectification, NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
This chapter talks about errors in bookkeeping and how to fix them. People make mistakes when they keep accounts. These mistakes can happen in many ways. Sometimes, a whole transaction is missed. Other times, the wrong amount is written down. Mistakes can also occur when totals are carried from one page to another or when entries are posted in the wrong place.
There are different kinds of errors. Some affect the trial balance while others do not. Errors that affect the trial balance include wrong additions, incorrect postings, and entering wrong amounts. If the debit and credit sides of the trial balance do not match, it means there is an error. The trial balance helps find these errors but not all errors are detected this way.
Some errors are not found by the trial balance. These include errors of omission where a transaction is completely left out. There are also errors of principle where entries are made in the wrong accounts due to misunderstanding accounting rules. Compensating errors happen when one mistake cancels out another. These errors will not show up in the trial balance.
When errors are found, they need to be corrected. If the error affects only one account, a suspense account can be used until the error is fixed. The suspense account is temporary. It helps balance the books until all errors are found and corrected. Once errors are found, journal entries are made to correct them.
The chapter explains how to correct specific types of errors. For example, if a transaction is recorded with the wrong amount, a correcting entry is made for the difference. If an amount is posted on the wrong side of an account, the correction involves double the amount. This is because posting on the wrong side affects the balance twice.
Errors can also affect profit and loss statements and balance sheets. For instance, recording an expense with a higher amount than it should be reduces profit. Correcting this error increases profit. Similarly, failing to record income decreases profit. Correcting such errors adjusts the profit.
Sometimes errors are found after final accounts are prepared. In such cases, adjustments are made without affecting the current year’s profit. A profit and loss adjustment account is used for this purpose. The balance of this account is transferred to the capital account.
The chapter provides examples of errors and their corrections. It includes practical questions to help understand how to identify and fix errors. Through these examples, one learns the step-by-step process of making correcting entries and preparing suspense accounts. Understanding these processes helps maintain accurate financial records. Accurate records are essential for preparing true and fair financial statements.
Textbook solutions
Multiple Choice Questions (MCQs)
1. Suspense account in the trial balance will be entered into:
A. Manufacturing A/c
B. Trading A/c
C. Profit and loss A/c
D. Balance sheet
Answer: D. Balance sheet
2. Wages paid to the firm’s own workman for making certain additions to machinery were posted to wages account. It is an error of:
A. Omission
B. Commission
C. Principle
D. None of these
Answer: B. Commission
3. Errors detected before preparation of trial balance are rectified:
A. By opening a suspense account
B. Without opening a suspense account
C. By transferring to profit and loss account
D. By transferring to trading account
Answer: B. Without opening a suspense account
4. Suspense account is:
A. Real account
B. Personal account
C. Nominal account
D. Any of these
Answer: D. Any of these
5. A trial balance is prepared to detect:
A. Errors of omission
B. Errors of principle
C. Compensating errors
D. Errors of posting
Answer: D. Errors of posting
Very Short Answer Type Questions
1. Name different types of errors.
Answer: The different types of errors are clerical errors, errors of principle, compensating errors.
2. Give two examples of capital receipts.
Answer: Two examples of capital receipts are cash from the sale of fixed assets and loans.
Short Answer Type Questions
1. What are the errors of omission?
Answer: When an entire transaction is not recorded in the books of accounts we call it the errors of omission.
2. What are compensating errors? Briefly explain.
Answer: It is just possible that the effect of certain error is neutralized by the effect of another error. The combined effect of the two errors will equalize the debit and credit side of the trial balance in spite of errors. These errors are called compensating errors.
3. What effect does the incorrect posting of debit as credit have on the trial balance?
Answer: The incorrect posting of debit as credit imbalances the trial balance. The difference in the trial balance will be with the amount, but the double of the original amount.
4. What is a one-sided error? How is it rectified?
Answer: Errors which affect only one account of the books of accounts are called one-sided errors. These errors can be rectified by preparing rectifying journal entries.
5. Explain the error of principle. Provide an example.
Answer: Every debit has got its corresponding credit. Errors of principles may be committed, if we debit or credit a wrong account due to our ignorance.
For example, the purchase of a building is capital expenditure and building account should be debited but if the accountant debits purchases account instead of building account, errors of principle will be there in the accounts.
6. What is a suspense account? Why is it necessary?
Answer: A suspense account is an imaginary account used as temporary solutions to the problem of when the debit side and credit side of a trial balance do not tally.
While maintaining books of accounts, we are likely to commit certain errors. In case of certain errors, the debit and credit side of trial balance does not tally each other. As final accounts are to be presented on the closing day of the accounting period, it becomes necessary that certain temporary measures should be adopted to overcome the problem. Thus, we transfer the difference in the trial balance to ‘Suspense Account’.
7. What do you mean by rectification entry?
Answer: A rectification entry is one which is made in the book of accounts to strike out a wrong entry and show true numbers in financial statements.
8. What are the differences between revenue and capital expenditure?
Answer: Capital expenditures are those expenditures which are incurred to acquire fixed assets such as buildings. The cost of the asset will then be allocated to depreciation expense over the useful life of the asset. Example purchase of land, purchase of machinery.
Revenue expenditures are however expenses which are matched immediately with the revenues reported on the current. They are mostly recurrent in nature. Example discounts, commissions.
9. How would you rectify the error of the last year so that current year’s record may not be affected?
Answer: I will rectify the errors of last year by transferring the difference caused by the errors to a temporary account called suspense account. Later on, I will find out the error and post rectifying entries.
Long Answer Type Questions
1. What are the different kinds of errors? Give two examples of each.
Answer: The different types of errors are:
(i) Errors of omission in the books of the original record. The entire transaction is not recorded in the books of accounts, we omit to record the transaction. For example, goods returned was not entered in the books, discount allowed not recorded.
(ii) Errors of principles. Every debit has got its corresponding credit. Errors of principles may be committed, if we debit or credit a wrong account due to our ignorance. For example, the purchase of a building debited in the purchase account instead of building account, repairs is debited to building account.
(iii) Compensating errors. It is just possible that the effect of certain error is neutralized by the effect of another error. The combined effect of the two errors will equalise the debit and credit side of the trial balance in spite of errors. Example. Sale of goods for Rs 100 was debited with Rs 10 and purchase of goods overcast by Rs 20.
(iv) Incorrect account in the original book. If the name of a wrong account is used in the journal or subsidiary books, the trial balance will not be able to detect it. For example, goods sold to Molly for Rs 300 was wrongly debited to Dolly with Rs 300, goods purchased by Lima debited to Lilima.
(v) Posting to the wrong account. It appears when posting from the debit side or credit side of the cash book or from purchases book or sales book or returns the book is made to wrong account but at the correct side as well as with the correct amount.
2. What are the different errors of commission? Explain.
Answer: The different errors of commission are:
(i) Recording wrong amount in the subsidiary books. Sometimes transactions are recorded in the subsidiary books with wrong amount.
(ii) Wrong totaling of subsidiary books. Sometimes, we total short or undercast subsidiary books and sometimes we overcast them.
(iii) Posting wrong amount in the ledger accounts. It is just possible that the wrong amount may be carried forward to ledger accounts.
(iv) Posting at the wrong side of the ledger account. Sometimes posting from subsidiary books and journal proper may be made at wrong side.
(v) Incorrect balancing of ledger accounts. If ledger accounts are not correctly balanced, there will be a difference in the debit and credit total of the trial balance
3. What is a suspense account? How is it opened? How is it closed?
Answer: A suspense account is an imaginary account used as temporary solutions to the problem of when the debit side and credit side of a trial balance do not tally.
In case of certain errors, the debit and credit side of the trial balance does not tally each other. As final accounts are to be presented on the closing day of the accounting period, temporary measures are adopted to overcome the problem. We, therefore, transfer the difference in the trial balance to ‘Suspense Account’ which is an imaginary account and is used as a temporary solution to the problem. Later on, accounting treatment of transactions are checked and errors located. These errors are rectified. After the rectification of all errors, the suspense account is automatically closed.
4. What do you mean by revenue expenditure and capital expenditure? Give five examples of each.
Answer: Revenue expenditures are however expenses which are matched immediately with the revenues reported on the current. They are mostly recurrent in nature. Example Wages paid to factory workers, oil to lubricate machines, power required to run machine or motor, service charges to motor vehicles, bad debts.
Capital expenditures are those expenditures which are incurred to acquire fixed assets such as buildings. The cost of the asset will then be allocated to depreciation expense over the useful life of the asset. Example purchase of land, purchase of machinery, interest on loan and capital, premium given for a lease, addition or extension of assets.
5. Which expenses are not detected by trial balance? Explain.
Answer: Expenses which are not detected by the trial balance are:
(i) The paired debit and credit figures for a transaction may both match but still be incorrect. The double-entry record will be complete but the mistake will continue to remain in accounts. Errors of principles in this way are not detected by the trial balance.
(ii) Some expenses that should have been recorded have not been entered in the system. This is a mistake of omission, not visible to the trial balance.
(iii) An error of reversal. When this happens, total “debits” still equal total “credits.”
6. What are compensating errors and errors of principle? Give two examples each.
Answer: It is just possible that the effect of certain error is neutralized by the effect of another error. The combined effect of the two errors will equalize the debit and credit side of the trial balance in spite of errors. These errors are called compensating errors. Example. Sale of goods to Chong for Rs 100 was debited to Chong’s account with only Rs. 10. Rs. 100 received from Chang was credited to Chang’s account with only Rs 10.
Every debit has got its corresponding credit. Errors of principles may be committed, if we debit or credit a wrong account due to our ignorance. For example, the purchase of a building is capital expenditure and building account should be debited but if the accountant debits purchases account instead of building account, errors of principle will be there in the accounts.
Practical Questions
Questions
Question 1
Rectify the following errors:
i. Credit sales to Alan of ₹ 5,000 were not recorded
ii. Credit purchases from Benny of ₹ 8,000 were not recorded
iii. Goods returned to Chong of ₹ 12,000 were not recorded
iv. Goods returned from Daniel of ₹ 10,000 were not recorded
Question 2
Rectify the following errors:
i. Credit sales to Kendy of { 5,000 were recorded as ₹ 5,400
ii. Credit purchases from Vizol of ₹8,000 were recorded as ₹8,800
iii. Goods returned to Chong of ₹12,000 were recorded as ₹12,200
iv. Goods returned from John of ₹10,000 were recorded as ₹11,000
Question 3
Give the rectifying entries for the following:
i. Machinery valued at ₹ 18,000 purchased on credit from Hilo Machines was debited to purchases account
ii. ₹ 350 received from B. Rio was posted on the account of B. Zho
iii. ₹ 160 spent by the trader on his own expenses was posted to the office expenses account
iv. ₹ 210 received for the sale of some old furniture from the o
Question 4
Rectify the following errors:
i. Goods for ₹ 5,500 were purchased from X on credit, but no entry has yet been passed
ii. Purchase return of ₹ 1,500 not returned on books
iii. Goods of ₹ 2,000 sold to Y on credit were entered in the sales book as ₹ 200 only
iv. Goods of value ₹ 1,800 returned by Yilow were included in the stock but no entry was passed in the books
v. Goods purchased for ₹ 900 were entered into the books as ₹ 9,000
vi. An invoice of goods sold to Renthungo was overcast by ₹ 100
Hint: in item vi., entry for sales was recorded in excess of ₹ 100. As such, sales account will be debited and Renthungo’s account will be credited.
Question 5
An accountant,s trial balance did not agree and the difference was transferred to the suspense account. Subsequently, the following erors were discovered:
i. A total of ₹ 2,757 in the sales book carried forward as ₹ 2,575
ii. An allowance of ₹ 200 by Carol in returns inward book
iii. A cheque for ₹ 315 from S. Humptosoe correctly entered into the cash book, but posted to Mr. Humptosoe’s account as ₹ 135
iv. Discount column on the payments side of the cash book totalled ₹ 213
v. Purchase book overcast by ₹ 1,000
Correct the above errors through journal entries and prepare the suspense account showing the difference in the books.
Question 6
The trial balance prepared by Ketholeno on March 3L, 2016 showed a difference, which was transferred to the suspense account. Subsequently, differences were found because of the following errors:
i. A cash amount of ₹ 250 received from Kense was correctly entered into the cash book, but was debited to his account.
ii. Sales Day book for February was overcast by ₹ 10. Therefore, the total sales should have been ₹ 3,070 instead of ₹ 3,080.
iii. Rent of ₹ 350 paid to the landlord on February 27 was entered into the cash book, but not into any other account.
Pass the journal entries to rectify the above mentioned errors and create a suspense account.
Question 7
In taking out a trial balance, a book-keeper found that he was out ₹ 3,809 in debit. Intending to close the book, he placed the difference in a newly opened suspense account, which was carried forward. Thereafter, he discovered that:
i. ₹ 17,715 received from Otoka was not posted to his account
ii. ₹ 9,500 written off as depreciation on fixtures was not posted to the depreciation account
iii. ₹ 1,50,000 for purchase of machinery was charged to sundry purchases account
iv. ₹ 3,742 as discount allowed to Grace was credited to her as ₹ 3,648
v. The total of Inwards Returns was ₹ 900 short
vi. An item of sale for ₹ 5,900 was posted as ₹ 9,500 in the sales account
Give the rectifying entries and prepare a suspense account.
Question 8
There was a difference of t 430 in a trial balance. It was placed on the debit side of a suspense account. Later, the errors were discovered. Pass the journal entries and prepare a suspense account.
i. Purchase book was overcast by ₹ 100
ii. Sales book was overcast by ₹ 1,000
iii. Goods for ₹ 800 purchased from Neiphiu was not posted to his account
iv. ₹ 500 instead of ₹ 570 was posted to the credit side of the commission account
v. Goods sold to Paul for ₹ 4,400 was posted as ₹ 4,000 to his account
vi. Goods sold to John for ₹ 750 was recorded in the purchase book
Question 9
An accountant failed to balance the trial balance with the credit side exceeding the debit side by ₹ 175. The amount was entered into a suspense account. Later, the errors mentioned below were discovered:
i. Goods amounting to ₹ 620 sold to Dimapur Woods Ltd. was correctly credited to the sales book, but as ₹ 260
ii. A credit balance of ₹ 755 was shown in the rent received account as ₹ 570
iii. The total of ₹ 200 under returns outwards book was not posted in the journal
iv. Sales book was undercast ₹ 100
v. The total of the credit side of Atsu’s account was overcast ₹ 100
Question 10
A book-keeper finds the debit side of the trial balance short by ₹ 308. For the time being, he manages to balance the side by opening a suspense account. Later, the following errors were found:
i. An entry for goods of ₹ 102 to Tom was posted to his account as ₹ 120
ii. A total discount of ₹ 100 is allowed each month; it was credited to the discount account in the ledger
iii. ₹ 275 paid by Hokishe was credited to Paul’s account
iv. An amount of ₹ 26 for purchase of stationary appears as paid in the cash account, but was not posted to the ledger
v. The debit side of the purchases account was undercast by ₹ 100
Make the necessary journal entries and prepare the suspense account.
Question 11
In taking out a trial balance, a book-keeper found that he is out ₹ 38.09 in debit. Intending to close the book, he places the difference in a newly opened suspense account, which was carried forward. Thereafter, he discovered that:
i. ₹ 177.15 received from Bruce was not posted to his account
ii. ₹ 95 written off as depreciation on fixtures was not posted to the depreciation account
iii. ₹ 1,500 for purchase of machinery was charged to sundry purchases account
iv. ₹ 37.42 as discount allowed to Martha was credited to her as ₹ 36.48
v. The total of Inwards Returns was ₹ 9 short
vi. An item of sale for ₹ 59 was posted as ₹ 95 in the sales account
Give the rectifying entries and prepare a suspense account. Also prepare the profit and loss account.
Question 12
The trial balance of X did not agree and the difference was transferred to a suspense account. Subsequently, the following errors were discovered:
i. A total of ₹ 2,757 in the sales book carried forward as ₹ 2,575
ii. An allowance of ₹ 200 by Y entered in the Returns Inwards book
iii. A cheque for ₹ 315 from Zeliang entered in the cash book, but posted to his account as ₹ 135
iv. Discount column on the payments side of the cash book totalled to ₹ 213 instead of ₹ 123
v. Purchase book overcast by ₹ 1,000
Correct the above errors with journal entries and prepare the suspense account showing the difference in books.
Question 13
Rectify the following errors using a suspense account:
i. ₹ 150 received on account of commission was credited to interest account
ii. An account of ₹ 1,500 withdrawn by the proprietor for his personal use was debited to sundry expense account
iii. The total of the discount column on the debit side of the cash book was short by ₹ 100
iv. Goods worth ₹ 670 were purchased from Ralph Tetseo and his account was debited with ₹ 760
v. ₹ 2,600 paid for purchase of stationery was charged to office expenses account
vi. Goods worth ₹ 2,100 were sold to Nise and invoice was sent to him. The invoice account was entered in the sales book and debited to his account. Later, it was found that the invoice was made only for ₹ 1,200
vii. ₹ 200 received from Angelo Kense, whose account had earlier been written off as bad, was credited to a newly opened account in his name
Solutions
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Extras
Additional questions and answers
1. Define errors of omission.
Answer : Errors of omission are classified into two parts, i.e., errors of complete omission and errors of partial omission. In the case of complete omission, the entire transaction escapes from being recorded. The accountant forgets to record these transactions in the subsidiary books or in the journal proper. Partial omission occurs when the transaction is recorded at the debit side of an account but the corresponding credit is omitted to be recorded.
33. Discuss comprehensively the limitations of the trial balance in detecting errors.
Answer : The trial balance is taken as a test of arithmetical accuracy. If both the debit and credit columns of the trial balance are equal to each other, we assume that there is no mistake in the posting of journals and subsidiary books to ledger accounts, in carrying forward balances of ledger accounts to the trial balance, and even in the balancing of ledger accounts. However, this assumption is correct but should never be taken as conclusive proof of accuracy. There are certain errors that remain undetected by the trial balance. Both the debit and credit columns of the trial balance may be equal in spite of certain mistakes of omissions and principles.
The limitations of the trial balance in detecting errors are:
- Errors of omission in the books of original record. The entire transaction is not recorded in the books of accounts, and we omit to record the transaction. For example, goods returned by Chong were taken into stock, but the return was not entered in the books. The mistake cannot be discovered by the trial balance because equal amounts could not be written at both the debit and credit sides of the trial balance as the entire transaction was not passed through due to omission.
- Errors of principles. We maintain books of accounts according to the double-entry system. According to this system, every debit has its corresponding credit. Errors of principles may be committed if we debit or credit a wrong account due to ignorance. For example, the purchase of a building is capital expenditure, and the building account should be debited, but if the accountant debits the purchases account instead of the building account, errors of principle will be present in the accounts. The trial balance will tally, but the mistake will continue to remain in the accounts.
- Compensating errors. It is possible that the effect of certain errors is neutralized by the effect of another error. The combined effect of the two errors will equalize the debit and credit side of the trial balance in spite of errors.
- Incorrect accounts in the original book. If the name of the wrong account is used in the journal or subsidiary books, the trial balance will not be able to detect it. For example, goods sold to Molly for ₹ 300 were wrongly debited to Dolly with ₹ 300. The mistake will not affect the trial balance because posting with the debit side of the trial balance has been made against Dolly’s account though instead of Molly’s account.
- Posting to the wrong account. If the posting from the debit side or credit side of the cash book or from purchases book, sales book, or returns book is made to the wrong account but at the correct side and with the correct amount, both the debit and credit side of the trial balance will be equal in spite of these errors.
Additional MCQs
1. Which of the following is not a type of error in maintaining books of accounts?
A. Omission
B. Commission
C. Principle
D. Estimation
Answer: D. Estimation
35. A key method to locate posting errors is to check the:
A. Cash book
B. Debtors list
C. Subsidiary totals
D. Bank statement
Answer: C. Subsidiary totals
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