Unit-9 Errors And Their Rectification

Learn about the types of errors which are usually committed in the process of accounting, the procedure for locating and rectifying those errors.

Does rectification of errors in the subsequent accounting periods always affect the trading result of those years? Give examples of errors which affect it and which do not.

Answer

The errors still remain to be detected and rectified so, the profit and Loss Account prepared from such Trial Balance is subject to the undetected errors. The profit thus arrived at may be more or less than the actual profits. Similarly, when the errors are detected and rectified during the next year, the rectifying entries will have their effect on the profit of the next year.
The profit is affected only if the errors involve accounts which usually appear in the Trading and Profit and Loss Account (nominal account$) and not those which appear in the Balance Sheet (real and personal accounts).
Suppose Rs. 24,000 paid for salaries during 1986 was posted to the Salaries Account as Rs. 20,400. This error has resulted in short debit of Rs. 3,600 to Salaries Account and so the salaries charged to Profit and Loss Account are short by Rs. 3,600. This would overstate the profits of 1986. When this error will be detected in 1987 and the rectifying entry passed, Rs. 3,600 will be added to salaries of 1987 and so the profit of 1987 will be decreased by Rs. 3,600. Thus, the errors, as well as the rectifying entries affect the profit. Of course, the effect of-rectifying entries will almost the reverse of the effect of errors.