Form 3 Book Keeping – CORRECTION OF ERRORS

        
 

When entries are made in the books of accounts, some wrong posting or calculation are possible and these are known as   ERRORS.

These errors are divided into two types, namely;-        

a)     Errors which do not affect the trial balance or errors which would not affect the agreement of the trial Balance totals.

b)     Errors which affect the agreement of the trial balance total.

 ERRORS WHICH   DO NOT AFFECT TRIAL BALANCE.

Those  errors which would not affect the agreement of trial balance totals are as follows;-

                  I.         Errors of omission.

                II.         Errors of commission.

              III.         Errors of principle

              IV.         Errors of original entry

               V.         Errors of compensating

              VI.         Errors of complete reversal of entry    

ERRORS OF OMISSION

These are errors that occur when transactions are completely omitted from the book of accounts.

EXAMPLE:-

         a) The sales of goods Tshs.120, 000 to George have been complete omitted from the book.

         b) Payment of wages by cash Tshs. 200,000 not recorded in the books of account.

Solution

                    
                           JOURNAL   ENTRIES

 
ERRORS OF COMMISSION

These are errors that occur when a transaction is posted to the wrong personal account of the same class.

 Example

A purchase of goods sh. 500,000 from C. Simon was entered in errors in the account of C. Simpson.

                                         JOURNAL ENTRIES

 
 

ERRORS OF PRINCIPLE

These are errors occured when double entry enter in correct a/c but incorrect figure.

 Example;-

A purchase of machine Tshs 200,000 had been posted to the purchases account.

                                        JOURNAL ENTRIES

 

ERROR OF ORIGINAL ENTRY

These are errors that occur when double entry enter in correct account but incorrect figure.

 Example

a)     Goods bought by cash Tshs 9000 enters in the book of accounts as   cash 9500.

b)     A sale of Tshs 980 to  A Smart was entered in the book as 890.

 
 

                                                JOURNAL ENTRIES

 
COMPENSATING ERRORS

These are errors which cancel each other one credit side and another debit side over-casted or under-cast by the same amount.

Example

a)     The sales account is over cast by 40,000 as also in the wages a/c

b)     Capital account under cast by 1000 as also in the purchases account.

                                                   JOURNAL ENTRIES

 
 

ERRORS OF COMPLETE REVERSAL OF ENTRY

These are errors where by the transactions are completely reversed i.e. the account to be debited is credited and the account to be credited is debited

Example

a)     Purchase of goods from JJ trader with 50000/= was debited as JJ traders and credited to purchases account

b)     Payment of cash 3000/= to Dickson was entered on the receipts side of the cash account and credited to Dickson account

                                                JOURNAL ENTRY

Example

Give an example of each of the different types of errors which are not revealed by a trail balance.

Show the journal entries necessary to correct the following errors

a)     A sale of goods for Tshs 412 to T more had been entered in T mone’s account.

b)     The purchase of machine on credit from J frank for Tshs 619 had been completely omitted from our books.

c)     The purchases of computer for Tshs 550 had been entered in error in the office expenses account.

d)     A sale of Tshs 120 to B wood had been entered in the books both debit and credit as Tshs 102.

                                                     
 

EXERCISE
To show the journal entries to correct the following errors

a)     A purchase of Tshs 699 on credit from K. wood had been entered in H. wood a/c

b)     A cheque of sh 189 paid for advertisement had been entered in the cash column instead of the bank column.

c)     Sales of goods Tshs 443 on credit to B Gounod had been entered in error in B.Gouton’s account.

d)        Purchases of goods on credit from K Isaac Tshs 89 entered on two places as Tshs  99.

e)     Cash paid to Mooze Tshs 89 entered on the debit side of the cash and credit side of mooze a/c.

f)      A sale of fittings Tshs 500 had entered in sales a/c.

Purchases of goods Tshs 428 had been entered in error in the fitting a/c.

                                                    JOURNAL PROPER

 
 

B.     ERRORS  WHICH  AFFECT  THE   TRIAL BALANCE.

These are the errors revealed by the disagreement of the trial balance, if the trail balance fails to agree and the error cannot be located, the book keeping may decide to let the trial balance to stay unbalanced latter when the error is located an entry should be made on the side which has smaller total in the trial balance.

SUSPENSE ACCOUNT

Is a temporary account used to record the difference in the trial balance. A suspense account is opened and the difference in the trial balance is recorded. The entry should be made on the side which has smaller total in the trial balance.

Example;-

If the debit side of the trial balance exceeds the credit column by 400 the suspense account will be opened with the following entry for Tshs 400 on the credit side.

 
 

The following are the common errors which affect the trial balance;

a)     Miss- costing in subsidiary books

b)     Posting on the wrong side of the account

c)     Posting the wrong amount

d)     Failure to post an entry from the subsidiary book

e)     Mistake in balance the account

The rectification for the above errors will consist of one entry in the account to be corrected and corresponding entry in the suspense account.

Example

Your book keeper extracted a trial balance on 31 December 1994 which failed to agree by Tshs 330 a shortage on credit side of the trial balance, a suspense account was opened for the difference.

In January 1995 the following errors made in 1994 were found.

1)     Sales day book had been under cast by 100

2)     Sales of Tshs 250 to J contell had been debited in error to J.conchean account

3)     Rent account had been under stated by Tshs 70

4)     Discount received account had been under cast by Tshs 300

5)     The sales of the motor vehicle at book value had been credited in error to sales account Tshs 360

You are required;-

– Show the journal entries necessary to correct the error

– Show up the suspense account after the errors described have been corrected

– If the net profit had been previously calculated at shs7900 for the year ended 31 December 1994, Show the calculation of credited profit.

Solution

                                                    JOURNAL PROPER

 
 

 
 

 
 

EXERCISE

You have extracted a trial balance and draw up accounts for the year ended 31^st December 1996. There was a shortage of Tshs 292 on the credit side of the trail balance, a suspense account being opened for that amount.

During 1997 the following errors made were located.

a)   Tsh55 received from sales of office equipment has been entered in the sales account.

b)     Purchases day book had been over cost by Tshs 60

c)     A private purchase of Tshs 115 had been included in the business purchases.

d)     Bank charges Tshs 38 entered in the cash book has not been posted to the bank charges account.

e)     A sale of goods to B. cross Tshs 690 was correctly entered in the sales book but entered in the personal account as Tshs 960.

Required;-

–          Show the requisite journal entries to correct the errors

–          Write the suspense account showing the correction of the errors

–          The net profit originally calculated for 1996 was Tshs 11,370 show your calculation of the correct figure.

Solution

                                                      JOURNAL PROPER

 
 

EXERCISE

1)     On 30^th 1994 the credit side of the trail balance of Lugamuza exceeded debit side by Tshs 20,000 and was placed in suspense account but later on 30^th December 1994 the following errors were dissolved.

A.    Cash paid to ujiji 10,000/= was debited to ujiji account as Tshs 1,000

B.     Rent income 2,430 was entered in rent expenses as a debit Tshs 3,240/=

C.     Purchase of 14,500 from Maria was credited to Morini as Tshs 15,400

D.    A debit sale of 15,050 to hosena  was only entered in the sales account only.

E.      A sale of 26,800/= to Jangii was debited to Jangiii as Tshs 26,800
F. Sales day book had been under cast by Tshs 1,620.

Required
(a) Show suspense account after the error had been corrected
(b) Show journal entries to correct the error.

Solution
(a) Suspense account

 
(b) Journal entries

                                                  JOURNAL PROPER