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Rectification

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Mani Chouhan
Mani Chouhan

Errors sometimes occur when accounting events are recorded incorrectly or not at all. There are three main types of errors: errors of omission where events are not recorded; errors of commission where events are recorded under the wrong account; and errors of principle where events are recorded in the wrong class of account. To rectify errors, new correcting entries must be recorded rather than simply erasing or overwriting incorrect entries, following the rectification of error procedure.

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RECTIFICATION OF ERROR In financial accounting, every single event occurring in monetary terms is recorded. Sometimes, it just so happens that some events are either not recorded or it is recorded in the wrong head of account or wrong figure is recorded in the correct head of account. Whatever the reason may be, there is always a chance of error in the books of accounts. These errors in accounting require rectification. The procedure adopted to rectify errors in financial accounting is called "Rectification of error". HOW TO RECTIFY THESE ERRORS One way of rectification is that we can simply erase or overwrite the incorrect entry and replace it with the correct one. But this practice is not allowed in accounting. We have to Rectify / correct the mistake by recording another entry. TYPES OF ERRORS Before going to the rectification process, let's first see the different kinds of errors that can appear in our books of accounts: ERROR OF OMISSION One of the most common errors is that an event escapes recording. This means that an event occurred but we did not record it. For example, we discussed about bank charges being deducted by banks without our knowledge or our payments made by banks on our standing orders etc. There can be other reasons as well. Such errors are called ERRORS OF OMISSION. ERROR OF COMMISSION Then, there is a chance that the event is classified and recorded correctly but within wrong classification of account. For example, a payment to Mr. A, who is a debtor, is recorded in the account of Mr. B, who is also a debtor. Now the classification is correct but entry is posted in the wrong account. Such errors are called ERRORS OF COMMISSION. ERROR OF PRINCIPLE Then there are errors in which an entry is recorded in the wrong class of account. For example a purchase of fixed asset, say, a vehicle is recorded in an expense account. These errors are called ERRORS OF PRINCIPLE. Importance Of Trading Account It is very important to find out gross profit or loss for the business to know whether purchasing, manufacturing and sales are sufficient for earning or not.The main objectives or important of trading account are as follows.
1.Trading account helps to know gross profit or loss. 2.Trading account provides information about the direct expenses. 3.Trading account provides safety against possibilities of loss. 4.Trading account helps in comparison of closing stock with last year's stock

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Rectification

  • 1. RECTIFICATION OF ERROR In financial accounting, every single event occurring in monetary terms is recorded. Sometimes, it just so happens that some events are either not recorded or it is recorded in the wrong head of account or wrong figure is recorded in the correct head of account. Whatever the reason may be, there is always a chance of error in the books of accounts. These errors in accounting require rectification. The procedure adopted to rectify errors in financial accounting is called "Rectification of error". HOW TO RECTIFY THESE ERRORS One way of rectification is that we can simply erase or overwrite the incorrect entry and replace it with the correct one. But this practice is not allowed in accounting. We have to Rectify / correct the mistake by recording another entry. TYPES OF ERRORS Before going to the rectification process, let's first see the different kinds of errors that can appear in our books of accounts: ERROR OF OMISSION One of the most common errors is that an event escapes recording. This means that an event occurred but we did not record it. For example, we discussed about bank charges being deducted by banks without our knowledge or our payments made by banks on our standing orders etc. There can be other reasons as well. Such errors are called ERRORS OF OMISSION. ERROR OF COMMISSION Then, there is a chance that the event is classified and recorded correctly but within wrong classification of account. For example, a payment to Mr. A, who is a debtor, is recorded in the account of Mr. B, who is also a debtor. Now the classification is correct but entry is posted in the wrong account. Such errors are called ERRORS OF COMMISSION. ERROR OF PRINCIPLE Then there are errors in which an entry is recorded in the wrong class of account. For example a purchase of fixed asset, say, a vehicle is recorded in an expense account. These errors are called ERRORS OF PRINCIPLE. Importance Of Trading Account It is very important to find out gross profit or loss for the business to know whether purchasing, manufacturing and sales are sufficient for earning or not.The main objectives or important of trading account are as follows.
  • 2. 1.Trading account helps to know gross profit or loss. 2.Trading account provides information about the direct expenses. 3.Trading account provides safety against possibilities of loss. 4.Trading account helps in comparison of closing stock with last year's stock