Class 10 Account

Main Types of Accounting Errors:

• 1. Errors of Omission: Completely or partially failing to record a transaction in the books of account.
• 2. Errors of Commission: Writing a wrong figure, posting to the wrong account, or making casting (totalling) mistakes.
• 3. Errors of Principle: Incorrect classification of capital and revenue transactions — violating the principles of accounting.
• 4. Compensating Errors: When the effect of one error is cancelled out by another error of equal and opposite nature.

Main Causes of One-sided Errors:

• Under-casting or over-casting the totals of Subsidiary Books (such as Purchase Book, Sales Book).
• Posting only to the debit side of the Ledger and omitting the credit side — or posting to the wrong side.
• Omitting a ledger account balance while preparing the Trial Balance.
• Arithmetic mistakes (addition/subtraction errors) while calculating the balance of an account.

Errors that affect both the debit and credit sides equally when recording business transactions — and which remain hidden even when the Trial Balance totals agree — are called Two-sided Errors. Such errors do not disturb the agreement of the Trial Balance.

Example:
When furniture worth Rs. 50,000 was purchased for the office, the Purchases Account was mistakenly debited instead of the Furniture Account. Here, Purchases Account was debited (instead of Furniture Account) and Cash Account was credited. Since Rs. 50,000 appears on both the debit and credit side, the Trial Balance still agrees — but this is a Two-sided Error of Principle.

When preparing the Trial Balance, if the totals of the debit and credit sides do not agree, a temporary account opened to place the difference amount — in order to close the books — is called a Suspense Account.

If the debit total is less, the difference is placed on the debit side; if the credit total is less, it is placed on the credit side — thereby making the Trial Balance agree temporarily. Once the errors are subsequently discovered, they are corrected through this very account. When all errors have been rectified, the Suspense Account automatically closes itself with a nil balance.

Based on their nature, accounting errors can be classified and discussed under the following four main types:

• 1. Errors of Omission: Completely or partially failing to record a transaction in the books of original entry or ledger is called an Error of Omission.
  • Complete Omission: A transaction is not recorded anywhere in the accounting system (e.g., a cash sale is not recorded at all). This does not affect the Trial Balance agreement.
  • Partial Omission: Posting to one side but omitting to post to the other. This disturbs the agreement of the Trial Balance.
• 2. Errors of Commission: Technical errors arising due to carelessness or inattentiveness while maintaining accounts fall under this category. Examples include: entering a wrong amount (writing Rs. 5,000 instead of Rs. 500), posting to the wrong account, casting (totalling) errors, or errors in carrying forward balances.
• 3. Errors of Principle: Errors that arise from classifying transactions contrary to the basic rules and principles of the double-entry accounting system are called Errors of Principle. They occur especially when capital income/expenditure is treated as revenue, or vice versa. Example: Debiting the Wages Account for labour costs incurred in constructing a building.
• 4. Compensating Errors: When two or more errors in a business cancel out the financial effect of each other, they are called Compensating Errors. For example, if Ram’s account was debited Rs. 100 less, and at the same time Shyam’s account was debited Rs. 100 more — the total debit side shows no net difference, and the Trial Balance still agrees.

Errors may be discovered before or after the Trial Balance is prepared. The rectification process is as follows:

• 1. Rectification of One-sided Errors:
  • Before preparing the Trial Balance: No rectifying journal entry is required. The error is corrected by directly writing a narration on the affected side (debit or credit) of the relevant ledger account. Example: If the Purchase Book was under-cast by Rs. 500, the Purchase Account’s debit side is directly annotated: “To Undercasting of Purchase Book Rs. 500.”
  • After preparing the Trial Balance: A Suspense Account must be used to write a rectifying journal entry. Example: If the Purchase Book was under-cast by Rs. 500, the rectifying entry is:
    Dr. Purchase Account Rs. 500 / Cr. Suspense Account Rs. 500
• 2. Rectification of Two-sided Errors:
  Two-sided errors are always corrected by preparing a Rectifying Journal Entry. The method used is to compare the “correct entry”, the “incorrect entry”, and derive the “rectifying entry”.
  Example: Labour costs of Rs. 2,000 for installing a machine were mistakenly debited to the Wages Account.
  • Should have been: Dr. Machinery Account Rs. 2,000 / Cr. Cash Account Rs. 2,000
  • What was done (wrong): Dr. Wages Account Rs. 2,000 / Cr. Cash Account Rs. 2,000
  • Rectifying Entry: Credit the incorrectly debited Wages Account and debit the correct Machinery Account:
    Dr. Machinery Account Rs. 2,000 / Cr. Wages Account Rs. 2,000

(i) Ram’s salary of Rs. 50,000 was mistakenly debited to Ram’s Personal Account.
(ii) Credit purchase of Rs. 1,000 was mistakenly recorded in the Sales Account.
(iii) Rent paid of Rs. 3,000 was recorded as Rent Income.

(i) Labour for installing a machine Rs. 400 was mistakenly debited to the Wages Account.
(ii) Cash sales of Rs. 200 were mistakenly recorded in the Purchase Account.
(iii) Rs. 250 received from Sitaram was mistakenly recorded in Ramsita’s Account.

(Note: Since the Trial Balance has not yet been prepared, no Suspense Account is needed — corrections are made directly in the relevant Ledger Account.)

• (i) Purchase Book under-cast by Rs. 150:
  Add to the debit side of the Purchase Account: “To Undercasting of Purchase Book Rs. 150”
• (ii) Sales Book over-cast by Rs. 350:
  Add to the debit side of the Sales Account: “To Overcasting of Sales Book Rs. 350” (to reduce the excess credit balance, debit the account)
• (iii) Commission paid Rs. 550, but only Rs. 50 was recorded in the Commission Account:
  Add to the debit side of the Commission Account: “To Underposting of Commission Paid Rs. 500” (Rs. 550 − Rs. 50 = Rs. 500 additional debit required)

• (i) Purchase Book over-cast by Rs. 350:
  Add to the credit side of the Purchase Account: “By Overcasting of Purchase Book Rs. 350” (to reduce the excess debit balance, credit the account)
• (ii) Sales Book under-cast by Rs. 225:
  Add to the credit side of the Sales Account: “By Undercasting of Sales Book Rs. 225” (add the missing credit)
• (iii) Sales Return Book over-cast by Rs. 120:
  Add to the credit side of the Sales Return Account: “By Overcasting of Sales Return Book Rs. 120” (to reduce the excess debit balance, credit the account)

• (i) Purchase Return Book under-cast by Rs. 175 (One-sided):
  Add to the credit side of the Purchase Return Account: “By Undercasting of Purchase Return Book Rs. 175”
• (ii) Salary paid to an employee Rs. 6,550 was debited to the Wages Account (Two-sided):
  Dr. Salary Account Rs. 6,550 / Cr. Wages Account Rs. 6,550
  (Salary paid to employee was debited to Wages Account — now rectified)
• (iii) Cash purchase of goods Rs. 1,500 was completely omitted from the records:
  Dr. Purchase Account Rs. 1,500 / Cr. Cash Account Rs. 1,500
  (Cash purchase omitted from records — now entered)

• (i) Interest received from bank Rs. 1,250 recorded as interest expense (Two-sided):
  Dr. Interest Expense Account Rs. 1,250
  Dr. Bank/Cash Account Rs. 1,250
   Cr. Interest Income Account Rs. 1,250
   Cr. Interest Expense Account Rs. 1,250
  (Interest received from bank was recorded as an expense — now rectified)
• (ii) Purchase Book over-cast by Rs. 350 (One-sided):
  Add to the credit side of the Purchase Account: “By Overcasting of Purchase Book Rs. 350”
• (iii) Audit fee paid Rs. 125 was mistakenly recorded as Rs. 152 in the Cash Account (One-sided):
  Dr. Cash/Suspense Account Rs. 27 / Cr. Audit Fee Account Rs. 27
  (Excess payment shown — now rectified: Rs. 152 − Rs. 125 = Rs. 27)

(Note: Since the Trial Balance has already been prepared, a Suspense Account is mandatory for rectifying One-sided Errors.)
(i) Sales Return Book under-cast by Rs. 130.
(ii) Purchase Return Book under-cast by Rs. 280.
(iii) Purchase Book under-cast by Rs. 440.

(i) Sales Book over-cast by Rs. 990.
(ii) Purchase Book over-cast by Rs. 450.
(iii) Labour of Rs. 600 for installing equipment was mistakenly debited to the Wages Account.

i. Depreciation on Machinery of Rs. 5,000 was mistakenly recorded as Rs. 500.
ii. Goods sold on credit worth Rs. 10,000 were mistakenly recorded in the Purchase Account.
iii. Goods purchased from Rajan for Rs. 6,000 were mistakenly recorded in the Sales Account.
iv. Salary payment of Rs. 10,000 was mistakenly debited to the Wages Account.

Working Notes — Q.1:
• i. Correct: Dr. Depreciation 5,000 / Cr. Machinery 5,000. Wrong: Dr. Depreciation 500 / Cr. Machinery 500. Difference = Rs. 4,500 — additional entry passed.
• ii. When credit sale was posted to Purchase Book: Purchase was debited and Creditor was credited (wrong). To rectify: reverse Purchase/Creditor entry and pass the correct Sales entry (Debtor Dr., Sales Cr.).
• iii. Purchase from Rajan should be: Dr. Purchase / Cr. Rajan. Wrong entry was: Dr. Rajan / Cr. Sales. To rectify: Debit both Purchase and Sales by Rs. 6,000 and credit Rajan by Rs. 12,000.

i. Salary payment of Rs. 100 was mistakenly debited to the Wages Account.
ii. Interest received of Rs. 300 was mistakenly credited to the Commission Account.
iii. Salary paid to Ram of Rs. 200 was debited to his Personal Account.
iv. Goods sold on credit to Samir for Rs. 1,000 were mistakenly recorded in the Purchase Account.

i. Goods sold to Raj for Rs. 5,000 were debited to Ram’s Account.
ii. Depreciation expense on machine of Rs. 1,000 was mistakenly recorded as Rs. 10,000.
iii. Goods sold on credit to Satish for Rs. 5,000 were recorded in the Purchase Book.
iv. Salary expense of Rs. 1,750 was mistakenly entered as Rs. 1,570.

• (iv) Solution (One-sided Error): Since the Trial Balance has not yet been prepared, correct directly in the Salary Account ledger:
Add to the debit side of the Salary Account: “To under-posting of salary expense Rs. 180” (Rs. 1,750 − Rs. 1,570 = Rs. 180).

i. Purchase Book over-cast by Rs. 400.
ii. Sales Book total was under-cast by Rs. 200.
iii. Interest paid to Ramesh of Rs. 300 was debited to his Personal Account.
iv. Amount paid to Ajay of Rs. 5,000 was recorded in Bijaya’s Account.

i. Wages paid to Sahila of Rs. 2,000 were debited to Sahila’s Personal Account.
ii. Depreciation on machine of Rs. 5,000 was mistakenly recorded as Rs. 500.
iii. Cash purchase of goods Rs. 10,000 was posted to the Sales Book.
iv. Depreciation on furniture of Rs. 7,000 was charged but only Rs. 700 was recorded.

i. Goods purchased from Pandit for Rs. 400 were mistakenly recorded as if sold to him.
ii. Wages paid Rs. 2,000 for installing a machine were mistakenly debited to the Wages Account.
iii. Sales Book under-cast by Rs. 4,000.
iv. Goods sold for Rs. 2,000 were not recorded anywhere.

i. Goods purchased from B for Rs. 75,000 were mistakenly posted to the Sales Account.
ii. Wages paid to C of Rs. 7,000 were omitted from the records.
iii. Purchase Book total was under-cast by Rs. 10,000.
iv. Wages paid to Hari of Rs. 10,000 were debited to Hari’s Personal Account.

• (iii) Solution (One-sided Error): Since the Trial Balance has not yet been prepared, correct directly in the Purchase Account ledger:
Add to the debit side of the Purchase Account: “To Undercasting of Purchase Book Rs. 10,000”