Question

Describe the procedures for correcting errors in accounting records. Provide an example.
How is the trial balance used to discover errors? Provide an example.
How would you find errors in recording transactions, and what is the process to correct the mistakes? Provide an example.

You must cite at least two sources.

Answer 1

A)The procedures for correcting errors in accounting records includes the i) identification of the wrong entry, ii) checking out the correct entry had to pass and iii) Rectifying the error in accounting error. The two methods of rectifying the accounting errors are :

a) Striking the wrong accounting error and passing the correct entry at its place. Like making the discount received under the sales account is rectified through deleting the original entry and making the correct entry.

b) Making a rectification adjustment entry to correct the accounting error. For example, taking the previous example, the adjustment entry between the Sales account and the Discount received account by Debiting Sales and Crediting Discount received with the affecting amount.

B)The trial balance is used to discover the errors like

1) error of principle: The principles like revenue entries are being treated as expense and getting debited instead of crediting,

2) error of balancing: The totals made in the ledger accounts are wrong and the balances drawn are wrong, which has resulted in mis-matching of the trial balance,

3) error of skipping : The accounts are missed to enter in the trial balance which resulted in the mis-matching of the trial balance.

C) The errors in recording the transactions can be located through (a) tallying the inventory accounts with the billing ie. missing billing a stock outflow and the same can be rectified through passing a recording entry, and (b) reconciliation of the bank entries with the cash book entries like direct receipt of any deposit by bank, which can be rectified through recording entry in the cash book.