Mr. A's Trial Balance as on 31 st March, 2025 did not agree and he wrote off the difference to the Profit and Loss Account for that year. Next year,…

CA Foundation · Accounting · PYQS · January 2026
Mr. A's Trial Balance as on 31 st March, 2025 did not agree and he wrote off the difference to the Profit and Loss Account for that year. Next year, he engaged the services of an accountant. who after a close scrutiny of the books of account for the year, observed the following errors: (i) Goods worth - 5,000 were dispatched to a customer before the close of the year but no invoice was made out. (ii) ₹ 3,000 due to Mr. X was omitted to be taken to the Trial Balance. (iii) Wages of 5,000 paid for erection of Machinery were debited to Wages Account. (iv) Purchase of goods from Mr. R for 20,000 was omitted to be recorded. (v) Cash Payment of 5,000 to Mr. C was posted to the credit of his account. (vi) Purchase of 15,390 was wrongly posted as 15,930. (vii) Goods worth - 16,000 were sent on sale or return basis to a customer and entered in the Sales Book. At the close of the year, the customer still had the option to return the goods. Gross Profit Margin was 25% on sales. (viii) A return to a creditor, 550 was entered in Returns Inward Book. However, the creditor's account was correctly posted. Mr. A charges depreciation @10% on Machinery. You are required to pass the necessary rectification entries in the books of Mr. A.

Suggested Answer and Working Notes:

Journal Entries in the books of Mr. A Sr. No. Particulars Dr. (₹) Cr. (₹) (i) Customer A/c Dr. 5,000 To Profit and Loss Adjustment A/c 5,000 (Being rectification of error arising from non-preparation of invoice for goods delivered) (ii) Suspense A/c Dr. 3,000 To Mr. X A/c 3,000 (Being - 3,000 due to Mr. X not taken into trial balance; now rectified) (iii) Machinery A/c Dr. 4,500 To Profit & Loss Adjustment A/c 4,500 (Being wages paid for correction of Machinery wrongly debited to wages A/c now, rectified after capitalisation of 4,500 i.e.5,000 less10% deprecation) (iv) Profit & Loss Adjustment A/c Dr. 20,000 To Mr., R’s A/c 20,000 (Being purchases from R omitted to be recorded, now rectified) (v) Mr. C A/c Dr. 10,000 To Suspense A/c 10,000 (Being Cash payment to Mr C was wrongly credited to his A/c, now rectified) (vi) Suspense A/c Dr. 540 To Profit & Loss Adjustment A/c 540 (Being purchase of 15,390 was wrongly posted as 15,930, now rectified) (vii) Inventory A/c Dr. 12,000 Profit & Loss Adjustment A/c Dr. 4,000 To Customer A/c 16,000 (Being the customer A/c credited for the goods not yet purchased by him, cost of the goods debited to inventory and profit debited to profit and loss adjustment A/c) (viii) Suspense A/c Dr. 1,100 To Profit & Loss Adjustment A/c 1,100 (Being return to a creditor was wrongly entered in return inward book now rectified) (ix) A’s Capital Account A/c Dr. 12,860 To Profit & Loss Adjustment A/c 12,860 (Being balance of Profit & Loss Adjustment A/c transferred to the Capital Account) (x) Suspense A/c Dr. 5,360 To A’s Capital A/c 5,360 (Being balance of suspense A/c transferred to the Capital A/c) Workings: I. Profit and Loss Adjustment Account (Prior Period Items) Particulars Amount ₹ Particulars Amount ₹ To R’s A/c 20,000 By Customer A/c 5,000 To Customer A/c 4,000 By Machinery A/c 4,500 By Suspense A/c 540 By Suspense A/c 1100 By A’s Capital A/c (bal. fig) 12,860 24,000 24,000 II. Suspense Account Particulars Amount ₹ Particulars Amount ₹ To Profit & Loss Adjustment A/c 1,100 By Mr. C A/c 10,000 To Mr. X 3,000 To Profit & Loss Adjustment A/c 540 To A’s Capital A/c (bal. fig) 5,360 10,000 10,000

Topics: Rectification of Errors

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