Mistakes in posting, calculation, and trial balancing can lead to complications. Some of these errors will affect the trial balance statement whereas some others do not. Most of the errors will be revealed at the time of preparation of trial balance. Sometimes, it happens that an error will get counter-balanced by another error. In such cases, the error will not be disclosed by the trial balance. Such types of errors constitute what bookkeepers call the compensating errors. There are errors affecting only a single account as well as those affecting two or more accounts. The mistakes and errors ought to be spotted and rectified. These mistakes are corrected either with the help of journal entries or by posting some explanatory notes in the accounts concerned.
Rectification of bookkeeping errors can be carried out at two stages; before the formulation of final accounts or after the making of these accounts. The right method of correction is done by passing the journal entry in a way by which the correction is made by giving effect to the posted entry that must have been passed. But, in certain cases the correction cannot be carried out by taking the help of journal entry. In normal cases, while undertaking the procedure of rectification, the required amount is put on the debit column or on the credit side of the account concerned.
When it comes to errors affecting both the sides of multiple accounts, rectification of these types of errors can often be made possible with the help of an entry made in the journal. While making good these errors, what is done is that the amount is debited in one account or multiple accounts, whereas a similar amount is credited to the other accounts. It is always prudent to find out and rectify the errors just before the final accounts for the year are made. In some cases, when the bookkeepers, even after doing considerable amount of search, fails in their efforts to spot the errors, or when the said bookkeepers are in a hurry to make the final accounts, they transfer the amount at stake to a newly opened account called the ‘suspense account’. In the following accounting period, when the errors get detected, these are corrected by making reference to the suspense account. Once, the errors are rectified, the newly opened suspense account has to be closed.
One must not forget that only those kinds of errors that affect the trial balance can be corrected by resorting to the suspense account. Since the trial balance is affected by errors which can be corrected with the help of suspense accounts, to calculate the discrepancy, a table will have to be prepared. The net profit is affected only by those accounts that get transferred to profit and loss account during the process of preparation of final accounts. In other words, the mistakes that happen in nominal accounts and goods accounts are the parties that affect the net profit. Errors that get into these accounts will result in the increase or decrease of the profit netted.