1.0
INTRODUCTION
Every concern is
interested in ascertaining its true profit and financial position at the end of
the trading year. But in spite of the best efforts of the book-keeper and the
accountant, certain errors are committed in the recording of the transactions,
which affect the final accounts of the concern.
It, therefore, becomes utmost
important for the book-keeper and the accountant to locate such errors and
rectify them so that correct profit and financial position of the concern may
be ascertained.
2.0
OBJECTIVES
In this note, you are
expected to:
1. Know all those
errors that will not affect the agreement of the trial balance.
2. Correct these
errors and support the corrections with journal.
3. Locate all those
errors that will affect the agreement of the trial balance.
4. Make necessary
corrections by raising a suspense account and insert the amount of the
difference between the two sides of the disagreed trial balance in the side
that is short.
3.0
MAIN CONTENT
3.1 Journal-
Rectification of Errors
In Note 6, we noted
that the mere fact that a Trial Balance does balance is no conclusion proof of
the correctness of the book-keeping. These, we agreed is because there are some
errors that do not affect the agreement of the Trial balance totals.
These errors we
learnt are errors of omission, errors of commission, errors of principle and
compensating errors.
The other classes of
errors are errors that affect the trial balance.
You should note that
where errors occur, the only remedy is to carry out a careful and systematic
check of all the postings with a view to locating the errors and effecting
necessary corrections.
3.2
Rectification of Errors not affecting the Agreement of the Trial Balance
When errors falling
under this class are located, the necessary correct entries must be made in the
accounts. Full information as to the cause of the errors and their remedy must
be recorded by a journal.
An example of each of
these types of errors not affecting the agreement of the Trial Balance is shown
below with the journal entry recording the correction.
3.2.1
Errors of Omission
A sale of N100 = worth of goods to Ade
on 09/10/2001 was completely omitted from the books. This is corrected by
debiting Ade account with N100 = and crediting sales account with N100.
The Journal
3.2.2
Error of Commission
A sale of goods
N50.00 to John on 12/10/01 was posted in error to Johnson Account. This is
corrected by debiting John Account with .72
N50.00
and crediting Johnson Account with N50.00
The Journal
3.2.3
Error of Principle
The purchase of
office equipment N1,000.00 is posted to office and General Expenses Account
instead of Office Equipment Account. This is corrected by debiting Office
Equipment Account (real account) and Crediting Office and General Expenses
Account (Nominal Account). 
3.2.4
Compensating Error
The sales and wages accounts are
overcast by N400.00 each. This is corrected by debiting sales account with
N400.00 and crediting wages account with N400.00.
3.3
Rectification of Errors Affecting the Trial Balance
Apart from the errors
that will not affect the agreement of the Trial Balance, there are other types
of errors. These errors cause the disagreement of the Trial Balance totals with
one another. These are mainly concerned with incorrect additions and where an
entry is made by only one side of the book. A Trial Balance may not be balance
for the .73
following
reasons:
1. Error in posting
2. Balance
unextracted
3. Balance extracted
but placed on the wrong side of the Trial Balance
4. Incomplete double
entry of item or items.
5. Errors in the
balancing of opening figures and
6. Errors in
additions
As the Trial Balance
preparation is the first stop in the preparation of annual accounts, no
accounts may be prepared unless the Trial Balance is balanced. In order to be
able to prepare a draft annual accounts before the cause of disagreement of the
two sides of the Trial balance is discovered, it is made of balance by raising
on the short side a
SUSPENSE
ACCOUNT.
The suspense account
is raised by inserting the amount of the difference between the two sides of a
disagreed Trial Balance and opening a suspense account in the ledger and either
debiting or crediting it depending on which side of the Trial Balance is short.
Efforts must be made to trace the errors before the preparation of final
accounts.
Trial Balance as at 31st
December, 2001
If the errors are not
found before the final accounts are prepared, the suspense account balance in
this case N50.00 will be shown on the liabilities side of the Balance Sheet. If
the suspense account has a debit balance, it will be shown on the asset side of
the Balance Sheet. The error must, however, be found and the suspense account
eliminated if the figure is a material one.
Where the errors are
discovered, they must be corrected, each one being supported by a journal.
Assume that
undercasting of sales N30.00 and omission of N20.00 cash
received
in Ola Account were responsible for the correction of Suspense Account N50.00
above. These errors were found on 2nd January, 2002.
It will be created thus: 
Note:
• That only those
errors, which affect the agreement of the Trial Balance totals are corrected
via the Suspense Account.
• An item of N40.00
has been posted as N4.00 from the debit of the Cash Book to the credit of a
customer's account. The obvious amount of discrepancy is N36.00 (Short Credit).
3.2.1
Illustration
The Trial Balance
shows the difference which was entered into suspense account. The difference is
a result of the following errors:
July
2001
1st July purchased
goods worth N500.00 from Alhaji Bello had been posted in error to Alhaji Bala.
4th I credit sales of
goods valued N80.00 posted to the credit side of Mr. Okon account instead of
debit.
6th July, purchase
day book was undercast by N300.00.
14th July sale day
book was undercast by N8.00..75
15th
July, machinery purchased for N50, 000.00 debited to purchases account.
You are required to
make necessary corrections through journal entries.
Note:
That items 1 and 5 above do not affect
the agreement of the Trial Balance totals. They are corrected by journal
entries only while errors 2, 3 and 4 affect the agreement of the Trial Balance.
The Trial Balance in order to balance must have a suspense account of N452.00
entered on the debit side. The amount of N452.00 needed to balance the Trial
Balance is arrived at by considering the errors 2, 3 and 4 will have on the
Trial Balance.
4.0
CONCLUSION
In Note 7, we noted
that the mere fact that a Trial Balance does balance is no conclusive proof of
the correctness of the book-keeping. This we agreed is because of some
compensating errors. Also in the this Note (7), we discussed some errors that will
affect the agreement of the Trial Balance. When any of the errors are located,
the necessary correction must be made in the accounts and supported with
journal.
5.0
SUMMARY
In this note, we treated all those
errors affecting the agreement of the Trial Balance and all those not affecting
the agreement of Trial Balance. If the errors are not located before the
preparation of the final accounts, in order to be able to prepare a draft of
annual accounts before the cause of disagreement of the two sides of the Trial
Balance is discovered, it is made to balance by raising on the short side. And
this will be supported with journal.
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