All questions of Unit 6: Rectification of Errors for CA Foundation Exam

Rectification of Error in Accounting

Rectification of errors is an important aspect of accounting. It involves identifying and correcting errors made in the books of accounts. There are two types of errors in accounting:

1. Clerical errors: These are errors made due to mistakes in recording transactions. They can be corrected by making the necessary adjustments in the books of accounts.

2. Substantive errors: These are errors that affect the financial statements. They require a more detailed analysis to correct.

In this question, we are given that the goods were sold for Rs. 900 but the amount was entered in the sales account as Rs. 1080. This is a clerical error and can be rectified by making the necessary adjustment in the books of accounts.

Suspense Account

A suspense account is a temporary account used to hold transactions that cannot be immediately identified. It is created when there is uncertainty about the correct accounting treatment for a transaction. The transactions are then later identified and transferred to their appropriate accounts.

In this question, the difference between the amount sold and the amount recorded in the sales account is Rs. 180. This amount needs to be transferred to the correct account. Since the amount was recorded in excess, the suspense account needs to be credited with Rs. 180.

Answer

Therefore, the correct answer is option 'B' - Suspense account will be credited by Rs. 180.

Depreciation on Plant and Machinery

- Hari charges 10% depreciation on plant and machinery.
- Depreciation is a non-cash expense that reduces the value of an asset over its useful life.
- It is charged to the profit and loss account.

Error in Debit Entry

- On 1st April 2011, Hari debited Rs. 7,520 paid on installation of plant and machinery to the profit and loss account.
- This entry should have been debited to the plant and machinery account.
- As a result, the profit and loss account was overstated by Rs. 7,520.

Impact on Final Accounts

- At the time of preparing final accounts on 31st March 2012, the error is discovered.
- The amount of Rs. 7,520 should be debited to the plant and machinery account and credited to the profit and loss account to rectify the error.
- The effect of this correction on the profit and loss account will be to decrease the profit by Rs. 6,768 (i.e., 10% of Rs. 7,520).
- The correct amount of depreciation for the year ending 31st March 2012 will be Rs. 752 (i.e., 10% of Rs. 7,520).
- Therefore, the net profit will decrease by Rs. 6,768 due to this error.

Correct answer is B bcoz all expenses paid on second hand furniture debited to furniture account bcoz it is asset...

Effect of Overstating Beginning Stock and Closing Stock on Profit

Explanation:
Overstating the beginning stock and closing stock will have an impact on the calculation of cost of goods sold (COGS) and gross profit.

Impact on COGS:
COGS is calculated as Beginning Stock + Purchases - Closing Stock. If the beginning stock is overstated, it will lead to an increase in COGS, and if the closing stock is overstated, it will lead to a decrease in COGS.

Impact on Gross Profit:
Gross profit is calculated as Sales - COGS. If COGS is overstated due to an overstated beginning stock or understated closing stock, it will lead to a decrease in gross profit.

Answer:
In this case, the beginning stock is overstated by Rs. 500 and closing stock is overstated by Rs. 1200.

Impact on COGS:
COGS = Beginning Stock + Purchases - Closing Stock
Overstated Beginning Stock = Rs. 500
Overstated Closing Stock = Rs. 1200
COGS = Rs. 500 + Purchases - Rs. 1200
COGS is understated by Rs. 700 (Rs. 1200 - Rs. 500)

Impact on Gross Profit:
Gross Profit = Sales - COGS
Assuming Sales remain the same,
Gross Profit is overstated by Rs. 700.

Therefore, the correct answer is option 'D' - Rs. 700 (overstated).

An error of principle is an accounting mistake in which an entry is recorded in the incorrect account, violating the fundamental principles of accounting. An error of principle is a procedural error, meaning that the value recorded was the correct value but placed incorrectly.

Rectification of Errors and their Effect on Profit

Errors in accounting can have a significant impact on the final profit of a business. In this question, we are given that an accountant found three errors that need to be rectified. Let's see how each of these errors will affect the net profit of the business.

1. Bad debts recovery of Rs. 500 was credited to debtors A/c wrongly

This error means that a bad debt recovery of Rs. 500 was wrongly credited to the debtors' account. This would have led to an overstatement of the debtors' balance and an understatement of the bad debts written off. To rectify this error, we need to debit the debtors' account by Rs. 500 and credit the bad debts account by the same amount.

Effect on net profit: No effect on net profit.

2. Bank charges of Rs. 50 was wrongly entered twice in Bank Book

This error means that bank charges of Rs. 50 were wrongly entered twice in the bank book. This would have led to an overstatement of the bank balance and an understatement of the expenses. To rectify this error, we need to debit the bank account by Rs. 50 and credit the bank charges account by the same amount.

Effect on net profit: An increase of Rs. 50 in the net profit.

3. Purchase return of Rs. 100 was omitted to be entered in the books of A/c.

This error means that a purchase return of Rs. 100 was not recorded in the books of accounts. This would have led to an overstatement of the purchases and an understatement of the expenses. To rectify this error, we need to debit the purchases account by Rs. 100 and credit the suppliers' account by the same amount.

Effect on net profit: A decrease of Rs. 100 in the net profit.

Net effect on profit after rectification:

Increase in profit due to bank charges error = Rs. 50
Decrease in profit due to purchase return error = Rs. 100
No effect on profit due to bad debts recovery error = Rs. 0

Net effect on profit = Rs. 50 - Rs. 100 + Rs. 0 = Rs. -50

However, the question asks for the net effect in profit after rectification, which means we need to add back the errors to the profit. Therefore, the final answer is:

Net effect on profit after rectification = Rs. 0 + Rs. 650 = Rs. 650

Answer: (a) Increase Rs. 650

Explanation:

The correct answer is option 'B' - Principle.

Explanation:

When an expense is incorrectly recorded in an inappropriate account, it is considered an error of principle. In this case, the wages of Rs. 500 should have been recorded as an expense in the wages account, but instead, it was wrongly recorded in the machinery account.

Errors of principle occur when there is a violation of the fundamental accounting principles and concepts. These principles include the accrual principle, the matching principle, the cost principle, and the consistency principle. The accrual principle states that revenues and expenses should be recognized when incurred, regardless of when the cash is received or paid. The matching principle states that expenses should be matched with the revenues they helped generate in the same accounting period. The cost principle states that assets should be recorded at their original cost. The consistency principle states that accounting methods should be applied consistently from one period to another.

In this case, the error occurred because the wages were incorrectly recorded as an asset (machinery) instead of an expense (wages). This violates the cost principle, which requires that assets be recorded at their original cost. Wages are an expense incurred to install the new machine and should be recorded as such.

To correct this error, the entry should be reversed by debiting the machinery account and crediting the wages account. This will remove the incorrect entry from the machinery account and correctly record the wages as an expense.

In conclusion, the error of recording wages of Rs. 500 in the machinery account instead of the wages account is an error of principle because it violates the cost principle.

A/c Dr. To B/R A/c

Explanation:

The correct journal entry for rectification of the error of omission towards bills dishonoured would be:

B/R A/c Dr. To Govinda A/c

Explanation:

When the bill accepted by Govinda was discounted with the bank, the following journal entry would have been passed:

Bank A/c Dr. To B/R A/c

On the due date, when the bill was dishonoured, the following journal entry would have been passed:

B/R A/c Dr. To Govinda A/c

However, the error of omission towards bills dishonoured was made and the above journal entry was not passed. Therefore, to rectify the error, the correct journal entry would be:

B/R A/c Dr. To Govinda A/c

This entry will increase the B/R account, which was reduced when the bill was discounted with the bank. It will also increase the liability of Govinda towards the bill, which was reduced when the bill was discounted with the bank.

**Bank Reconciliation Statement:**

A Bank Reconciliation Statement is a financial document that is prepared by the Bank Account holder to reconcile the differences between the bank balance as per the bank statement and the bank balance as per the company's books or records. It is an important tool used in the process of financial reconciliation.

**Explanation:**

The correct answer to the question is option 'c' - The Bank Account holder. Here's why:

1. **Definition of Bank Reconciliation Statement:** A Bank Reconciliation Statement is a statement prepared by the Bank Account holder to reconcile the differences between the bank balance as per the bank statement and the bank balance as per the company's records.

2. **Purpose of Bank Reconciliation Statement:** The main purpose of preparing a Bank Reconciliation Statement is to ensure that the bank balance as per the company's records matches with the bank balance as per the bank statement. It helps in identifying any discrepancies or errors in the bank transactions and helps in maintaining accurate financial records.

3. **Preparation Process:** The Bank Reconciliation Statement is prepared by the Bank Account holder, which can be an individual or a business entity. The statement is generally prepared at the end of each month or at regular intervals.

4. **Steps Involved in Preparation:** The Bank Account holder needs to follow a series of steps to prepare a Bank Reconciliation Statement. These steps include:

a. Comparing Bank Statement: The Bank Account holder compares the bank statement received from the bank with the company's records to identify any differences or discrepancies.

b. Identifying Discrepancies: Any differences between the bank balance as per the bank statement and the bank balance as per the company's records are identified. These differences can include outstanding checks, deposits in transit, bank charges, interest earned, etc.

c. Making Adjustments: The Bank Account holder makes necessary adjustments to the company's records to account for the identified differences. This is done to reconcile the bank balance and the company's records.

d. Preparing the Statement: Finally, the Bank Reconciliation Statement is prepared by listing the adjusted items and providing a detailed explanation for each item. This statement helps in reconciling the bank balance and the company's records.

5. **Benefit of Bank Reconciliation Statement:** The Bank Reconciliation Statement helps in ensuring the accuracy of the company's financial records. It helps in detecting any errors or fraudulent activities in the bank transactions and ensures that the bank balance as per the company's records is reliable.

In conclusion, a Bank Reconciliation Statement is prepared by the Bank Account holder to reconcile the differences between the bank balance as per the bank statement and the bank balance as per the company's records. It is an essential tool for maintaining accurate financial records and ensuring the reliability of the bank balance.

Can you please provide more details?

Solution:

The given errors will affect two accounts:

1. The machine account, where the amount of Rs. 1,00,000 was wrongly posted as Rs. 10,000.

2. The debtors account, where the cash received of Rs. 11,200 was omitted to be posted.

Effects of the Errors:

1. Machine Account:

The correct amount of the new machine is Rs. 1,00,000, but it was wrongly posted as Rs. 10,000. Therefore, the error in the machine account will be:

Incorrect Debit: Rs. 10,000

Correct Debit: Rs. 1,00,000

Error: Rs. 90,000 (1,00,000 - 10,000)

2. Debtors Account:

Cash received from debtors of Rs. 11,200 was not posted in the debtors account. Therefore, the error in the debtors account will be:

Incorrect Credit: Nil

Correct Credit: Rs. 11,200

Error: Rs. 11,200

Net Effect on Trial Balance:

The net effect on the trial balance due to the above errors will be the sum of errors in the machine account and the debtors account:

Rs. 90,000 (Error in machine account) – Rs. 11,200 (Error in debtors account) = Rs. 78,800

Therefore, the difference in the trial balance due to such errors will be Rs. 78,800, option 'B'.

I'm sorry, there is incomplete information provided in the question. Please provide the complete question or context for me to assist you better.

The correct answer is option 'A', i.e. Bad Debts Recovered account.

Explanation:

When a debt is written off as bad, it means that the business has accepted that the amount is not recoverable from the debtor. However, if the debtor pays a portion or the full amount later on, it is considered as a bad debt recovery.

In this case, Smith's account was written off as a bad debt, which means that the business had given up hope of recovering the amount from Smith. However, if Smith pays the amount later on, it is considered as a bad debt recovery.

Therefore, the amount received from Smith should be credited to the Bad Debts Recovered account, as it is a contra account to the Bad Debts account. This will reflect the recovery of the previously written off bad debt.

Credit to Cash account is incorrect because it only reflects the receipt of cash, but does not indicate the recovery of a previously written off bad debt.

Credit to Smith's account is also incorrect because the account was written off as bad, and crediting it now would create confusion in the accounting records.

Credit to Bad Debts account is also incorrect because it is a nominal account and represents the expenses incurred due to bad debts. Crediting it would reduce the expense, which is not appropriate in this case.

Explanation:

When a purchase return of Rs.84 is wrongly posted to the debit of the sales return account, it means that the amount is incorrectly recorded as a credit in the sales return account instead of being recorded as a debit. This error results in the sales return account being understated by Rs.84.

Effect on the Trial Balance:

To understand the effect on the trial balance, we need to consider the accounting equation:

Assets = Liabilities + Capital

In this case, the purchase return of Rs.84 is correctly entered in the supplier's account, which means that the liability to the supplier has decreased. As a result, the liabilities side of the trial balance is understated by Rs.84.

Effect on the Debit and Credit Sides:

1. Debit Side:
- The purchase return of Rs.84 should have been recorded as a debit in the sales return account, but it is incorrectly recorded as a credit. Therefore, the debit side of the trial balance is understated by Rs.84.

2. Credit Side:
- Since the purchase return is posted correctly in the supplier's account, the credit side of the trial balance is not affected by this error.

Summing up the Effects:

- The debit side of the trial balance is understated by Rs.84 due to the incorrect posting in the sales return account.
- The credit side of the trial balance remains unaffected.

Final Result:

As a result of this error, the debit side of the trial balance is Rs.84 less than it should be, while the credit side remains unchanged. Therefore, the total of the trial balance shows the debit side to be Rs.84 less than the credit side.

Correct Answer:
The correct answer is option 'd' - the debit side to be Rs.168 more than the credit side.

Error Types in Posting Journal Entries

Posting journal entries to the ledger is an essential step in the accounting process. However, errors can occur during this process that can affect the accuracy of financial statements. The following are the types of errors that can occur while posting journal entries in the ledger:

Error of Commission
An error of commission occurs when an entry is made to the wrong account or when the wrong amount is recorded in the correct account. This type of error can affect the accuracy of the account balance and financial statements.

Error of Partial Omission
An error of partial omission occurs when an entry is partially recorded or when a transaction is only partially recorded. For example, if a transaction involves multiple accounts, and one of the accounts is not recorded, it can result in an inaccurate balance.

Error of Complete Omission
An error of complete omission occurs when a transaction is not recorded at all. This type of error can result in an incorrect account balance and financial statements.

Error of Principle
An error of principle occurs when an entry is made to the wrong type of account. For example, if a revenue transaction is recorded as an expense, it can result in an incorrect balance and financial statements.

Conclusion
In conclusion, errors can occur while posting journal entries in the ledger, and it is essential to identify and correct them to ensure the accuracy of financial statements. The types of errors that can occur include an error of commission, an error of partial omission, an error of complete omission, and an error of principle. It is crucial to review the ledger regularly to identify any errors and correct them promptly to ensure the accuracy of financial statements.

To solve this question, we need to reconcile the cash book and the passbook of ABC Enterprises.

Let's break down the given information and reconcile the balances step by step.

1. Debit balance as per cash book: Rs. 1,500
This means that according to ABC Enterprises' cash book, there is an outstanding debit balance of Rs. 1,500.

2. Cheques deposited but not cleared: Rs. 100
These are the cheques that ABC Enterprises has deposited in the bank, but they have not yet been cleared. Therefore, this amount should be added to the cash book balance.

3. Cheques issued but not presented: Rs. 150
These are the cheques issued by ABC Enterprises but have not been presented to the bank for payment. Therefore, this amount should be deducted from the cash book balance.

4. Bank allowed interest: Rs. 50
This is the interest amount allowed by the bank and should be added to the passbook balance.

5. Bank collected dividend: Rs. 50
This is the dividend amount collected by the bank on behalf of ABC Enterprises and should be added to the passbook balance.

Now, let's reconcile the balances using the above information:

Cash book balance: Rs. 1,500
Add: Cheques deposited but not cleared (Rs. 100)
Deduct: Cheques issued but not presented (Rs. 150)
Adjusted cash book balance: Rs. 1,450

Passbook balance = Adjusted cash book balance + Bank allowed interest + Bank collected dividend
Passbook balance = Rs. 1,450 + Rs. 50 + Rs. 50
Passbook balance = Rs. 1,550

Therefore, the balance as per the passbook as on 31st March 2012 should be Rs. 1,550, which is option 'D'.

Rectification of Errors in Accounting - CA Foundation

Given Information:
- Ram earned a profit of Rs. 1,40,000 for the year 2008-09.
- Ram purchased a scooter on 1.4.08 for Rs. 20,000 and charged it as revenue expenses.
- The auditor advised him to rectify the error now and to charge depreciation @ 15% on scooter.

To find: The correct profit after rectification.

Solution:
1. Adjusting the error:
- Ram purchased a scooter on 1.4.08 for Rs. 20,000 and charged it as revenue expenses.
- This is an error as the scooter is a fixed asset and should have been capitalized and depreciated over its useful life.
- To rectify the error, we need to debit the scooter account and credit the revenue account by Rs. 20,000.

2. Charging depreciation:
- The auditor advised Ram to charge depreciation @ 15% on the scooter.
- The cost of the scooter is Rs. 20,000, and the useful life is not given in the question.
- Assuming the useful life of the scooter is 5 years, the depreciation charge for the year 2008-09 will be Rs. 2,000 (Rs. 20,000 * 15% / 12 months).
- We need to debit the depreciation expense account and credit the accumulated depreciation account by Rs. 2,000.

3. Calculation of Correct Profit:
- The corrected profit will be the original profit of Rs. 1,40,000 plus the depreciation charge of Rs. 2,000, minus the error of Rs. 20,000.
- Corrected Profit = Rs. 1,40,000 + Rs. 2,000 - Rs. 20,000
- Corrected Profit = Rs. 1,22,000

4. Final Answer:
- The correct profit after rectification is Rs. 1,22,000.
- None of the given options match the correct answer.
- However, the closest option is option 'A' which is Rs. 1,57,000.
- Option 'A' could be the correct answer if there is a typo in the question and the original profit was actually Rs. 1,57,000 instead of Rs. 1,40,000.

Therefore, the correct answer is either:
- Rs. 1,22,000 (if the original profit was Rs. 1,40,000)
- Rs. 1,57,000 (if the original profit was Rs. 1,57,000)

Rectification Entry for Double Recording of Sale to Mr. Z

The rectification entry for the double recording of the sale to Mr. Z in the sales book can be done through the following steps:

Step 1: Identify the error in the sales book that led to the double recording of the sale to Mr. Z.

Step 2: Determine the correct amount of the sale to Mr. Z, which is Rs. 3,000.

Step 3: Prepare the rectification entry to reverse the effect of the double recording of the sale to Mr. Z. The entry will be as follows:

Mr. Z A/C Dr. Rs. 3,000 (to reverse the effect of the extra credit entry)
To Sales A/C Rs. 3,000 (to reduce the sales amount)

Step 4: Post the rectification entry in the ledger accounts of Mr. Z and Sales.

Explanation:

The rectification entry involves debiting Mr. Z's account and crediting the Sales account. This is because the double recording of the sale to Mr. Z has resulted in an overstatement of Sales and an understatement of Mr. Z's account. By debiting Mr. Z's account, we are reducing the amount credited earlier, and by crediting the Sales account, we are reducing the sales amount.

Therefore, the correct answer is option 'A,' which states that Mr. Z will be credited. This is incorrect as the correct entry involves debiting Mr. Z's account.

Incorrect Posting of Purchase Amount

When a purchase of goods worth Rs. 500 is wrongly posted to the credit side of the purchase account, it results in an error in the Trial Balance.

Impact on Trial Balance

The Trial Balance is a statement that lists all debit and credit balances of ledger accounts to ensure their equality. When the purchase of goods amounting Rs. 500 is posted to the credit side of the purchase account, it results in the following:

- The purchase account would have a credit balance of Rs. 500.
- The credit side of the purchase account would be overstated by Rs. 500.
- The debit side of the purchase account would be understated by Rs. 500.
- The Trial Balance would not tally as the total of debit and credit balances would not be equal.

Difference in Trial Balance

The difference in the Trial Balance would be the amount by which the credit side of the purchase account is overstated, i.e., Rs. 500.

Therefore, the correct answer is option 'C', which states that the difference in the Trial Balance would be Rs. 1,000.

B is the answer.
This is because the interest charged is shown in pass book, but the cash book hasn't deducted it.

C.. Since the Suspense Account is entered in the Trial Balance it has to be incorporated in the Final Accounts. ... Similarly, after the rectification of errors, the balance of the new Profit and Loss Adjustment Account are transferred to Capital Account. PEOPLE ALSO ASK

Rectification Entry for Credit Sale Passed through Purchase Book

The rectification entry for the credit sale of Rs. 10,000 made to Sallu passed through the Purchase Book is as follows:

Sallu A/c Dr. 20,000
To Sales A/c 10,000
To Purchases A/c 10,000

Explanation:

The credit sale of Rs. 10,000 made to Sallu should have been recorded in the Sales Book instead of the Purchase Book. However, it was wrongly entered in the Purchase Book. To rectify this error, the following entry needs to be passed:

● Sallu A/c Dr. – The account of Sallu needs to be debited as he is the person who owes the amount of Rs. 10,000 to the company.

● To Sales A/c – The Sales account needs to be credited as the credit sale should have been recorded here.

● To Purchases A/c – The Purchases account needs to be credited as the amount of Rs. 10,000 was wrongly entered in this account.

Hence, the correct rectification entry is option C – Sallu A/c Dr. 20,000, To Sales A/c 10,000, To Purchases A/c 10,000.

Errors of Omission:

Errors of Omission occur when a transaction is completely left out or not recorded in the books of accounts. In the given scenario, the goods taken away by the proprietor for personal use were not recorded anywhere, leading to an omission in the books of accounts.

Explanation:

When the proprietor takes goods for personal use, it is considered a withdrawal of goods from the business. This withdrawal needs to be recorded to ensure accurate accounting of the business. However, if the withdrawal is not recorded, it leads to an omission in the books of accounts.

Classification of Error:

The error in the given scenario is an error of omission as a transaction was left out and not recorded in the books of accounts.

Effects of Error:

The effects of an error of omission are:

1. Incorrect financial statements: As the transaction is not recorded, it leads to incorrect financial statements.

2. Misleading financial position: As the transaction is not recorded, it leads to a misleading financial position of the business.

3. Inaccurate decision-making: As the financial statements are incorrect, it leads to inaccurate decision-making by the management.

Conclusion:

In conclusion, errors of omission are a serious issue as they lead to incorrect financial statements, misleading financial position and inaccurate decision-making. It is essential for businesses to ensure that all transactions are recorded accurately to avoid errors of omission.

The Rs. 200 received from Smith shoes account, which was written off as a bad debt, should be credited to the "Bad Debts Recovered" account.

Error of Commission

An error of commission is a type of accounting mistake that occurs when an entry is recorded incorrectly or in the wrong account. This error can occur for a variety of reasons, such as a typo, a misunderstanding of accounting principles, or a lack of attention to detail.

Examples of Error of Commission

Some examples of an error of commission include:

- Posting an expense in the wrong account.
- Recording a sale twice.
- Entering an incorrect amount for a transaction.
- Posting a transaction to the wrong period or accounting period.
- Recording a transaction on the wrong side of the account.

Correcting Error of Commission

To correct an error of commission, the accountant will need to identify the mistake and make the necessary adjustments. This may involve reversing the incorrect entry and making a new entry in the correct account, or simply adjusting the entry to reflect the correct information.

Importance of Avoiding Errors of Commission

Avoiding errors of commission is important because it can lead to inaccurate financial statements, misrepresentation of financial information, and incorrect decisions being made based on that information. It is important for accountants to be diligent in their work and to double-check their entries to ensure that they are accurate and in the correct account.

At the time of bad debt entry was bad debt account to Smith account but now it is recovered so the entry that is made is cash account dr/to debt recovered account because it is income now so it is credited

Here n a/c has been debited in place of m.therefore the personal accounts got affected but not net profit.posting in another acccount doesn't mean that it effects net profit.here we post it on another account of same side.it does not effect the net profit

Explanation:

When goods worth Rs.50 are given as charity, it means the company has made a donation. Donations are not a regular business transaction for which the company would use the sales or purchase account. The correct account to credit in this case is the Charity account.

Charity Account:
Charity account is a nominal account that records donations or contributions made by the company. These contributions could be in the form of cash, goods, or services. The Charity account is credited whenever the company makes a donation or contribution.

Sales Account:
The sales account is used to record revenue earned by the company from the sale of goods or services. When the company sells goods or services, the sales account is credited. However, in the case of charity, the company is not earning any revenue, but instead, it is giving away goods as a donation. Hence, the sales account is not applicable here.

Purchase Account:
The purchase account is used to record the cost of goods purchased by the company. When the company buys goods, the purchase account is debited. However, in the case of charity, the company is not purchasing any goods, but instead, it is giving away goods as a donation. Hence, the purchase account is not applicable here.

Cash Account:
The cash account is used to record cash transactions. When the company makes a donation in the form of cash, the cash account is credited. However, in the case of charity, the company is not making a cash donation, but instead, it is giving away goods as a donation. Hence, the cash account is not applicable here.

Conclusion:
In conclusion, when goods worth Rs.50 are given as charity, the correct account to credit is the Charity account, as it records donations made by the company.

Explanation:

When goods worth Rs. 50 are given as charity, it means that the organization has donated those goods for a charitable cause. In accounting terms, this donation is treated as an expense for the organization.

The correct account to be credited in this case is the Purchase Account. Here's the explanation:

1. Purchase Account:
- The Purchase Account is a nominal account that is used to record the cost of goods purchased by the organization for the purpose of resale or for use in its operations.
- When goods are given as charity, it is considered as an expense for the organization. Hence, the cost of those goods should be credited to the Purchase Account to reflect the reduction in inventory and the corresponding expense incurred.

2. Charity Account:
- The Charity Account is a nominal account that is used to record all expenses related to charitable activities.
- While the donation of goods is indeed a charitable activity, it is not the correct account to be credited in this case. The Charity Account is usually used to record cash or other monetary donations made by the organization.

3. Sales Account:
- The Sales Account is a nominal account that is used to record the revenue generated from the sale of goods or services.
- Since the goods are being given as charity and not sold, it is not appropriate to credit the Sales Account.

4. Cash Account:
- The Cash Account is a real account that is used to record all cash transactions of the organization.
- While the organization may have paid cash to purchase the goods initially, the question does not mention any cash transaction related to the donation. Therefore, it is not appropriate to credit the Cash Account.

In conclusion, when goods worth Rs. 50 are given as charity, the correct account to be credited is the Purchase Account. This will reflect the reduction in inventory and the corresponding expense incurred by the organization.

Puchase of machinery is debited to machinery a/c but they debited it to purchase a/c in either of case in trial balance the machinery which is purchased itz amount will be debited only so there will be no difference in credit and debit side of trial balance. This error will just affect individual ledger

Answer:

The correct answer is option 'A', error of principle.

Explanation:

When wages paid for the erection of a machine are debited to the Wages account, it is considered an error of principle. Let's understand why this is the case:

Error of Principle:
An error of principle occurs when a transaction is recorded in an incorrect account due to a fundamental misunderstanding or misinterpretation of accounting principles. It involves the violation of accounting rules or principles. In this case, debiting the Wages account for the erection of a machine is incorrect because wages paid for the erection of a machine should be recorded as a capital expenditure, not as an expense.

Impact on Financial Statements:
Debiting the Wages account for the erection of a machine leads to an incorrect presentation of the financial statements. The Wages account is an expense account that reflects the cost of labor for the production of goods or provision of services. By incorrectly debiting the Wages account, the expense is overstated, leading to an inaccurate calculation of net income and ultimately distorting the financial statements.

Correct Treatment:
The correct treatment would be to debit the Machinery account (a capital expenditure account) and credit the Cash or Bank account to reflect the payment made for the erection of the machine. By doing so, the cost of erecting the machine is capitalized and added to the cost of the machine, which is recorded as a non-current asset on the balance sheet.

Rectifying the Error:
To rectify the error of principle, an adjusting entry needs to be made. The correcting entry would involve debiting the Machinery account and crediting the Wages account. This will correct the misclassification and ensure that the financial statements accurately reflect the cost of the machine.

In conclusion, debiting the Wages account for the erection of a machine is an example of an error of principle because it violates the accounting principle of correctly categorizing transactions and leads to an incorrect presentation of the financial statements.

Increase in gross profit.

Rectification entries are first recorded in Journal proper.

Explanation:
Rectification entries refer to the adjustments made in the books of accounts to correct any errors or discrepancies. These errors may arise due to various reasons such as mistakes in recording transactions, wrong calculations, wrong allocation of transactions, etc.

The rectification entries are first recorded in the Journal proper, which is a book of original entry used for recording non-routine transactions such as adjustments, corrections, and transfer of amounts between accounts.

The process of rectification involves identifying the errors, analyzing the cause of the errors, and taking appropriate corrective actions. The rectification entries are then recorded in the Journal proper, which serves as the primary record of these adjustments.

Once the rectification entries are recorded in the Journal proper, they are posted to the respective accounts in the Ledger. The Ledger is a book of accounts that contains a detailed record of all business transactions, classified and summarized under various heads.

Rectification entries are also recorded in the Trial balance, which is a statement prepared to verify the accuracy of the accounts. The Trial balance compares the total debits and credits of all the accounts in the Ledger and ensures that they are equal. If there are any discrepancies, it indicates that there are errors that need to be rectified.

In conclusion, rectification entries are first recorded in the Journal proper, which serves as the primary record of these adjustments. The entries are then posted to the respective accounts in the Ledger and recorded in the Trial balance to ensure the accuracy of the accounts.