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FINANCIAL ACCOUNTING (MGT101) ASSIGNMENT - 01 Solution and Disscussion Due Date: 17 FEB 2014

FINANCIAL ACCOUNTING (MGT101)

 

NON-GRADED ASSIGNMENT - 01

 

By Non- graded, we mean that it will not be included in your semester GPA (No weightage in final marks).

 

TOPIC TO BE TESTED:


 

DUE DATE: 17TH FEBRUARY 2014

 

• “Rectification of Errors”

 

LEARNING OBJECTIVES:

 

  • To develop an understanding about rectifying the errors in the books of accounts.

 

 

ASSIGNMENT QUESTION

 

Following errors have been found in the books of ABC Corporation which maintained their accounting record under periodic inventory system.

 

S.No.

 

Found Errors

 

 

 

1               Sale of goods worth Rs. 10,000 on credit basis to Mr. A was wrongly passed through the purchase book.

 

2               Purchase of goods amounting to Rs. 20,000 from Mr. B was wrongly passed through the sales book.

 

3               An amount of Rs. 5,000 paid for the installation of plant and machinery was wrongly debited to wages account.

 

4                Sale of old furniture amounting to Rs. 10,000 was passed through the sales book.

 

5               A purchase of Rs. 2,000 from Mr. C was wrongly passed through the return outwards book.

 

6                A sale of Rs. 3,000 to Mr. D was wrongly passed through the return inwards book.

 

7                Goods sold to Mr. Y of Rs. 945 have been wrongly entered in the sales book as Rs. 495.

 

8                Return inwards of Rs. 1,000 from Mr. Z was omitted to record in the books of accounts.

 

 

 

Required:

 

Pass the rectified journal entries in the books of accounts.

IMPORTANT:

 

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RULES FOR MARKING

 

Please note that your assignment will not be graded or graded as Zero (0), if:

 

  • It is submitted after the due date.

 

  • The file you uploaded does not open or is corrupt.

 

  • It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.

 

  • It is cheated or copied from other students, internet, books, journals etc.
  • Accounts involved are incorrectly mentioned in the given table of assignment even if the rules of debit and credit are correctly mentioned. So be careful to mention the accounts involved against each transaction.

 

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Assignment (Non-Graded)

FINANCIAL ACCOUNTING (MGT101)

 

Dear Students!

 

This is to inform that a Non-Graded Assignment will be opened on February 12, 2014 and due date of assignment submission will be February 17, 2014.`

Q. How errors can be rectified?

Rectification of Errors:

Errors Effecting One Account

 

These Types pf errors may occur due to the following reasons:

1. Wrong Castings

2. Wrong Balancing

3. Wrong Posting

 

These errors are not difficult to locate. These are located during the course of preparation of the trial balance. Hence, there is no need to pass any journal entry to rectify these errors. The error is rectified by giving proper explanatory note or by crossing the wrong figure with red ink line and writing the correct figure above the crossed out figures. However, if the error is discovered after finalization of the Trial Balance, a journal entry is passed with the help of a Suspense Account.

 

1. Error of Casting:

Casting is a process of totaling the amount of transaction at the end of a certain period. It is a mistake in totaling the books of original entry.

Observe the following:

Sales Book

Year

 

 

1992
April 5
April 15
April 16
April 24


Amrita
Anita
Hira
Chanda


1,500
2,000
1,400
1,000

 

 

4,900

 

The correct total should be Rs. 5,900.

 

2. Error of carry forward/brought forward:

This type of error occurs when the total of one page is copied wrongly on the next page. In this case, the same procedure as discussed above should be followed.

 


3, Error of Posting:

Error of posting may be of two types:

a) Posting to correct account but either with wrong amount or on wrong side or both.

b) Posting to wrong account with correct amount or wrong amount or wrong side with wrong amount.

Type (a) error of posting affects only one account whereas type (b) error affects two accounts. While correcting the mistake at the posting stage, it should be presumed that the transaction has been recorded correctly in the books of original entry.

 

Errors Effecting two or more Account

Such errors may include:

1. Errors of Omission

2. Errors of Recording

3. Errors of posting to wrong account

4. Errors of principle

 

1. Errors of Omission

This type of error occurs when the transaction is omitted from being recorded in the books of accounts. The omission affects the subsidiary book and the individual account of the item not recorded in the subsidiary books.

E.g.

Purchase of goods Rs. 5,000 from X & Co. is omitted.

In this case, two accounts are affected. Purchase Account as the total of Purchase Book is added short by Rs. 5,000. Personal Account of X & Co. will be affected. Purchase of Rs. 5,000 is not credited to X & Co.’s Account. Hence the rectification entry will be:

Purchase A/c  Dr.                   5,000

            To X & Co.’s A/c         5,000

 

2. Errors of Recording

The transaction recorded in a wrongful manner affects two accounts as follows:

a) It affects the total of the particular book and the concerned account of that book

b) The individual account is also affected.

 

E.g.

Goods worth Rs. 450 returned by Ajay recorded as Rs. 45.

In this transaction, Return Inward Book shows an entry of Rs. 45 as against Rs. 450. Similarly, Mr. Ajay’s Account is also affected as it is posted with wrong amount. The rectification entry will be:

Return Inwards A/c     Dr.       405

            To Ajay’s A/c               405

 

3. Error of principle

This type of error occurs when the principle of accounting is violated. Such an error distorts the profit or loss. At this stage following points should be remembered:

a) when as asset is purchased:

i) It should be debited to Asset Account and not to Purchase Account.

ii) All expenses regarding purchase of an asset and its installation should be debited to the respective Asset Account and not to Expense Account.

iii) Amount spent on repairs of the second hand asset purchased should be debited to the respective Asset Account and not to Repairs Account.

 


b) When as asset is sold:

i) It should be credited to Asset Account and not to Sales Account

ii) Any expenses incurred in connection with sales should be debited to Asset Account and not to the Expenses Account.

MGT101 - Financial Accounting Assignments No.01 Solution Fall 2013

how u enter suspense acount when u know the both acounts???

Rectification Entries:
1 Debit: Suspense Account 2,000
Credit: Purchase A/C 1,000
Credit: Sales A/C 1,000
2) Debit: Purchase Account 2,000 
Debit: Sales Account 2,000
Credit: Suspense Account 4,000
3) Debit: Installation of Plant 5,000
& Machinary A.C 
Credit: Wages A/C 5,000
4) Debit: Sales A/C 10,000
Credit: Furniture A/C 10,000
5) Debit: Purchase A/C 2,000
Credit: Return Outward A/C 2,000
6) Debit: Return inward 3,000
Credit: Sales A/C 3,000

Serial #

Description/Particulars

     V/No

      L/F

   Debit

     Rs.

  Credit

     Rs.

 

Suspense Account

 

2,000

 

 

       Purchase Account

 

 

1,000

 

       Sales Account

 

 

1,000

 

Purchase Account

 

2,000

 

 

      Sales Account

 

2,000

 

 

      Suspense Account

 

 

4,000

 

Installation of Plants &

Machinary

 

5,000

 

 

       Wages Account

 

 

5,000

 

Sales Account

 

10,000

 

 

       Furniture Account

 

 

10,000

 

Purchase Account

 

2,000

 

 

       Return Outward

 

 

2,000

 

Return Outward

 

3,000

 

 

      Sales Account

 

 

3,000

Students chk kr ke btayain me right or wrong.

MGT101 , Lecture 28 , page 188

RECTIFICATION OF ERROR

In financial accounting, every single event occurring in monetary terms is recorded. Sometimes, it just so
happens that some events are either not recorded or it is recorded in the wrong head of account or wrong
figure is recorded in the correct head of account.
Whatever the reason may be, there is always a chance of error in the books of accounts. These errors in
accounting require rectification. The procedure adopted to rectify errors in financial accounting is called
"Rectification of error"
HOW TO RECTIFY THESE ERRORS
One way of rectification is that we can simply erase or overwrite the incorrect entry and replace it with the
correct one. But this practice is not allowed in accounting. We have to Rectify / correct the mistake by
recording another entry.
TYPES OF ERRORS
Before going to the rectification process, let's first see the different kinds of errors that can appear in our
books of accounts:
ERROR OF OMISSION
One of the most common errors is that an event escapes recording. This means that an event occurred but
we did not record it. For example, we discussed about bank charges being deducted by banks without our
knowledge or our payments made by banks on our standing orders etc. There can be other reasons as well.
Such errors are called ERRORS OF OMISSION
ERROR OF COMMISSION
Then, there is a chance that the event is classified and recorded correctly but within wrong classification of
account. For example, a payment to Mr. A, who is a debtor, is recorded in the account of Mr. B, who is also
debtor. Now the classification is correct but entry is posted in the wrong account. Such errors are called
ERRORS OF COMMISSION.
ERROR OF PRINCIPLE
Then there are errors in which an entry is recorded in the wrong class of account. For example a purchase of
fixed asset, say, a vehicle is recorded in an expense account. These errors are called ERRORS OF
PRINCIPLE.
ERROR OF ORIGINAL ENTRY
The errors in which recording is in correct account but the figure is incorrect are called ERRORS OF
ORIGINAL ENTRY. For example, a receipt of Rs. 50,000 from a debtor is recorded as Rs. 5,000 in his
account
Then, there are errors in which the entry is reversed by mistake. This means that the account that should
have been debited is credited and vice versa. These errors are called REVERSAL OF ENTRY.
RECTIFYING THE ERRORS
Now, we will rectify all these types of entries:
ERROR OF OMISSION
This is the easiest error to rectify. You have to record the entry that was omitted by mistake. It is important
to note here that the rectifying entry will be posted on the date on which the error was discovered.

Serial #

Description/Particulars

     V/No

      L/F

   Debit

     Rs.

  Credit

     Rs.

 

Suspense Account

 

2,000

 

 

       Purchase Account

 

 

1,000

 

       Sales Account

 

 

1,000

 

Purchase Account

 

2,000

 

 

      Sales Account

 

2,000

 

 

      Suspense Account

 

 

4,000

 

Installation of Plants &

Machinary

 

5,000

 

 

       Wages Account

 

 

5,000

 

Sales Account

 

10,000

 

 

       Furniture Account

 

 

10,000

 

Purchase Account

 

2,000

 

 

       Return Outward

 

 

2,000

 

Return Outward

 

3,000

 

 

      Sales Account

 

 

3,000

Rectification Entries:

1)            Suspense Account                          2,000

                                   Purchase A/C                                        1,000

                                   Sales A/C                                               1,000

 

2)             Purchase Account                          2,000    

       Sales Account                                 2,000

                                   Suspense Account                                4,000

 

3)             Installation of Plant                       5,000

       & Machinary A.C

                                   Wages A/C                                              5,000

 

4)             Sales A/C                                          10,000

                                    Furniture A/C                                         10,000

 

5)             Purchase A/C                                   2,000

                                    Return Outward A/C                             2,000

 

6)             Return inward                                 3,000

                                    Sales A/C                                                 3,000

See the attached file pls

Attachments:

Rectification Entries:

1)            Suspense Account                          2,000

                                   Purchase A/C                                        1,000

                                   Sales A/C                                               1,000

 

2)             Purchase Account                          2,000    

       Sales Account                                 2,000

                                   Suspense Account                                4,000

 

3)             Installation of Plant                       5,000

       & Machinary A.C

                                   Wages A/C                                              5,000

 

4)             Sales A/C                                          10,000

                                    Furniture A/C                                         10,000

 

5)             Purchase A/C                                   2,000

                                    Return Outward A/C                             2,000

 

6)             Return inward                                 3,000

                                    Sales A/C                                                 3,000

Solution for All......... 

Sale of goods worth Rs. 10,000 on credit basis to Mr. A was wrongly passed through the purchase book.

Original entry: Mr. A   10,000                    Wrong Entry: Purchase A/C  10,000

                           Sales A/C  10,000                                     Mr. A         10,000

Rectifying entry:  Mr A    20,000

                                           Purchase A/C 10,000

                                           Sales A/C      10,000

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