Accountants put together trial stability to test the correctness of accounts. If complete of debit balances doesn’t agree with the entire of credit score balances, it’s a clear-cut indication that sure errors have been dedicated whereas recording the transactions within the books of unique entry or subsidiary books. It’s our utmost obligation to find these errors and rectify them, solely then we must always proceed for making ready ultimate accounts. We additionally know that each one kinds of errors should not revealed by trial stability as a number of the errors don’t impact the entire of trial stability. So these can’t be situated with the assistance of trial stability. An accountant ought to make investments his vitality to find each kinds of errors and rectify them earlier than making ready buying and selling, revenue and loss account and stability sheet. As a result of if these are ready earlier than rectification these is not going to give us the right end result and revenue and loss disclosed by them, shall not be the precise revenue or loss Outsourced Accounting Service.
All errors of accounting process may be categorised as follows:
1. Errors of Precept
When a transaction is recorded towards the basic ideas of accounting, it’s an error of precept. For instance, if income expenditure is handled as capital expenditure or vice versa.
2. Clerical Errors
These errors can once more be sub-divided as follows:
(i) Errors of omission
When a transaction is both wholly or partially not recorded within the books, it’s an error of omission. It might be with regard to omission to enter a transaction within the books of unique entry or with regard to omission to put up a transaction from the books of unique entry to the account involved within the ledger.
(ii) Errors of fee
When an entry is incorrectly recorded both wholly or partially-incorrect posting, calculation, casting or balancing. A few of the errors of fee impact the trial stability whereas others don’t. Errors effecting the trial stability may be revealed by making ready a trial stability.
(iii) Compensating errors
Typically an error is counter-balanced by one other error in such a means that it isn’t disclosed by the trial stability. Such errors are known as compensating errors.
From the standpoint of rectification of the errors, these may be divided into two teams :
(a) Errors affecting one account solely, and
(b) Errors affecting two or extra accounts.
Errors affecting one account
Errors which have an effect on may be :
(a) Casting errors;
(b) error of posting;
(c) carry ahead;
(d) balancing; and
(e) omission from trial stability.
Such errors ought to, initially, be situated and rectified. These are rectified both with the assistance of journal entry or by giving an explanatory be aware within the account involved.
Phases of correction of accounting errors
All kinds of errors in accounts may be rectified at two levels:
(i) earlier than the preparation of the ultimate accounts; and
(ii) after the preparation of ultimate accounts.
Errors rectified throughout the accounting interval
The right methodology of correction of an error is to move journal entry in such a means that it corrects the error that has been dedicated and in addition provides impact to the entry that ought to have been handed. However whereas errors are being rectified earlier than the preparation of ultimate accounts, in sure circumstances the correction cannot be achieved with the assistance of journal entry as a result of the errors have been such. Usually, the process of rectification, if being achieved, earlier than the preparation of ultimate accounts is as follows