Correction of errors in accounting by erasing contradicts the accounting principles.
Errors are to be corrected by passing appropriate journal entry or bringing correction in the ledger account concerned complying with the accounting principle.
But rectification of errors depends on the stages errors detected.
There is a proverb in English ‘To err is human’ i.e. it is man who commits mistake. As man commits mistake it is natural, mistakes may occur in keeping accounts.
Accountant may amount mistake in keeping accounts of transactions inadvertently or due to lack of proper knowledge.
Trial balance is the only way to detect errors of accounts if any. But errors may remain in accounts even after agreement of the trial balance. Rectification of errors of accounts if any is indispensable.
Errors not affecting the agreement of a trial balance
The errors mentioned below do not hamper the agreement of a trial balance. Despite the following errors in accounts, the totals of debit money column and credit money column agree.
1. Errors of omission
Omission of recording a particular transaction does not hamper the agreement of the trial balance.
Goods purchased on account $1000. If this transaction is not recorded in the books of account the agreement of a trial balance remains unaffected.
2. Error of Commission
The amount written in the journal for a particular transaction may be greater or smaller in the ledger accounts and debtor is treated as creditor and creditor as debtor, such types of mistakes are called errors of commission.
Goods sold on account $531 to Karim. For this transaction if account receivable is debited $513 and sales account is credited for $513. Although both the accounts are under cast by $18, the agreement of trial balance will not be hampered for this mistake.
3. Compensating Errors
This error is called self rectifying error. An error rectified by one or more errors is called compensating error.
Salary expense is under debited by $100 but general expense is over debited by $100.
4. Errors of Principle
In maintaining accounts of transactions some errors may happen due to lack of sound knowledge of accounting principles.
Capital expenditure treated as revenue expenditure, if repairing expense of a machine is treated as cost of machinery.
Errors affecting the agreement of a trial balance
The errors for which a trial balance disagrees are of wider range. Generally these are divided into three groups;
1. Errors in costing and balancing
Two sides of ledger accounts are totaled for finding out balance; of the accounts. Errors committed in totaling lead to errors in balancing.
2. Errors in posting accounts in the ledger from the original books
These errors may happen in different ways.
While transferring from journal if a transaction is recorded in only one account in the ledger or recorded in the wrong side of an account or wrong amount is posted in an account.
3. Errors in transferring ledger balance to a trail balance
The trial balance disagrees if ledger account balances are not correctly transferred.
From view point of effects errors-are grouped into, two:
1. One sided errors
The errors, which, affect only one side of accounts, are termed one sided errors. One sided errors hamper the agreement of the trial balance.
in case of such error suspense account is used to make the totals of the trial balance equal, e.g. if debit money column is short-fall the suspense account be used for that shortage and vice-versa.
2. Double sided errors
The errors which affect both debit and credit are termed double sided errors. If the errors affect the debit and credit for equal amount of money, the trial balance agrees.
But if the errors affect debit and credit for dissimilar amount, the trial balance disagrees. In such case suspense account is used for agreement of the trial balance.