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Rectification of Errors
In financial accounting, every single transaction & events occurring in monetary terms is recorded. Sometimes we omits or forgot to record the transaction or it might be recorded incorrect. Whatever the reason may be, there is always a chance of error in the books of accounts which need to be rectify. The process which is adopted to rectify these types of error are known as rectification of errors.
Types of accounting errors:
The accounting errors are classified into three main category.
- Errors of omission
- Error of commission
- Compensating Error
1. Error of Omission: When a transaction is wholly or partially not recorded in the books of accounts, it is said to be error of omission. It may be in the following manner.
- Either it is not taken into consideration
- It might be not be posted into the ledgers
- It might be recorded partially
2. Error of Commission: When an entry is incorrectly recorded in the books of accounts such as the entry might be recorded with less amount or it has been posted wrong side of the ledger account. Some of the errors affects the trial balance whereas some of them may not. Below are some of the most common errors of commission.
- Posting of wrong amount
- Posting on the wrong side
- Wrong Totalling in subsidiary books.
3. Compensating Errors: Such errors nullify the effect of the errors committed earlier. They are called compensating errors as they are compensated with other errors, meanwhile, they do not affect the trial balance. Because another error of opposite effect is committed which neutralizes the effect of earlier.
