Page 128 - debkxi
P. 128

Rectification of Errors                                                        17.3

                     Solution:
                                                  RECTIFYING JOURNAL ENTRIES
                     Date     Particulars                                          L.F.   Dr. (`)   Cr. (`)
                       (i)   Ramesh                                          ...Dr.         360
                                To  Purchases A/c                                                  360
                             (Rctification of a purchase of ` 1,040 from Ramesh
                             passed as ` 1,400)
                       (ii)   Samples or Advertisement A/c                   ...Dr.       5,000
                                To  Purchases A/c                                                 5,000
                             (Goods distributed as samples omitted to be recorded,
                             now recorded)
                       (iii)   Plant and Machinery A/c                       ...Dr.         350
                                To  Wages A/c                                                      350
                             (Wages for additions to machinery wrongly treated as revenue
                             expenditure, now rectified by capitalising the same)

                     Effect on Net Profit or Effect of Errors on Final Accounts


                     For calculating the effect of errors on net profit, it is essential to know that only
                     those accounts which are taken to Trading Account or Profit & Loss Account,
                     i.e., Nominal Accounts, affect the profits. For example, Stock Account, Purchases
                     Account,  Wages Account,  Salaries  Account, Commission Account, Bad Debts
                     Account, etc., affect the Net profit because they are shown either in Trading
                     Account  or  Profit  &  Loss  Account.  If  any  of  these  accounts  is  debited  in  the
                     rectification entry, it reduces the Profit and if any of these accounts is credited
                     then it increases the Profit.

                     Balances of Personal and Real Accounts form part of a Balance Sheet, so errors in such
                     types of accounts will affect Balance Sheet only, not Profit & Loss Account.

                      3.  Rectify the following errors and show their effect on profit:
                          (i)  A return of goods worth ` 5,000 by a customer was taken into stock but no
                             entry was passed in the books.

                         (ii)  A credit purchase of goods worth ` 15,000 from Mohan & Co. was not passed
                             in the books although the goods were taken into stock.

                         (iii)  A return of goods worth  `  5,000 by  Mohan  was  entered  in  the  Purchases
                             Return Book.
                         (iv)  A return  of goods worth  ` 8,000 to Sohan was passed through  the Sales
                             Return Book.
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