Financial position at the close of the trading year

Every concern is interested its true profit and financial position at the close of the trading year. But inspite of the best efforts of the book- Keeper and the accountant certain errors are committed in the recording of the transactions which effect the final accounts of the concern. It, therefore, becomes utmost important for the book-keeper and the accountant to locate such errors and rectify them so that correct profit and financial position of the concern may be ascertained. So whenever error in accounting records come to notice, they should be rectified without waiting till the end of the accounting year when trail balance is to be prepared. The objectives of rectification of errors are as follows.

1.      Preparing correct accounting records

2.     Ascertaining correct profit or loss for the accounting period by preparing the profit and loss Account with the correct figures.

3.     Exhibiting a true financial position of the concern on a particular date by preparing the Balance sheet with correct accounting Data

Types of Errors

From the point of view of rectification of errors, error can be divided into two types:

• Errors affecting one account only.
• Errors affecting two or more accounts.

Errors which affect only one account can be :

• Error of posting.
• Error of casting.
• Error of carry forward .
• Error of omission of balance of any account in the Trail balance.