Forex Arithmetic

These errors occur when a fundamental rule of accounting is violated. A common example is 'Capital Expenditure' being recorded as 'Revenue Expenditure'. For instance, if a bank spends money to buy a computer (an asset) but records it as a daily office expense, it is an error of principle. These errors are tricky because they do not make the trial balance disagree, so they are hard to find.

Rectification is the process of correcting accounting mistakes. If an error is found before the trial balance, it is fixed by correcting the ledger. If found after the trial balance, a Suspense Account is used. For example, if 500 rupees was debited instead of 50 rupees, a reverse entry of 450 rupees is made to fix it. This ensures the books show the true financial position of the bank.

One-sided errors affect only one account, such as writing 100 instead of 1000 in the sales book. These errors cause the trial balance to fail. Two-sided errors affect two or more accounts equally, such as completely forgetting to record a 5000-rupee loan. Two-sided errors are harder to detect because the trial balance will still match even though the information is wrong.