For the correction of mistakes, rubbing, cutting, erasing is not to be followed as such methods give rise to suspicions and auditors can object to the use of such methods. Rectification of errors is to be done by following accounting procedures only.
How to rectify the error?
Analyze the transaction involving error w.r.t the amount and account affected.
Do what has not been done; Cancel what has been wrongly done.
For every wrong debit, cancel by crediting;
For every wrong credit, cancel by debiting;
For excess debit, cancel the excess by crediting;
For excess credit, cancel the excess by debiting;
For every short debit, debit the concerned account;
For every short credit, credit the concerned account.
Keep in mind the following points:
1. Recorded means entered in books of original entry.
2. Posted means entered in ledger accounts.
3. Whatever error is clearly stated, consider that only, assume other things to have been correctly done.
Rectification of Single sided errors:
Single sided errors can be discovered:
1. Before preparing Trial Balance.
2. After preparing Trial Balance.
1. Before preparing Trial Balance:
In this case, the errors are to be rectified without using suspense account.
2. After preparing Trial Balance:
In this case, the errors are to be rectified using suspense account.
Suspense account is a temporary account prepared for the purpose of making the sides of the Trial Balance equal for the ultimate purpose of preparing Final Accounts.
If Debit side or Credit side of Trial balance is short the balance is put to suspense account. So, the suspense account is credited when the debit side of trial balance is short and suspense account is debited if the credit side of trial balance is short.
The debit balance of suspense account is taken to the Asset side of the Balance sheet and the credit balance of suspense account is taken to the Liability side of the Balance sheet.
This account is used to remove single sided errors.
When all the single sided errors are removed using suspense account the balance of suspense account becomes nil. If, after removing the error there still remains some balance in the suspense account, it means there are still some errors that remained undiscovered.