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The effect of errors and their rectification on profit or Loss Account

Some of the errors affect the profit and loss of the firm but some do not. If the error is in the nominal account, the profit and loss account will be affected but if it is a personal or a real account that has an error, there will be no effect on the profit and loss. It is clear that the rectification of an error in a nominal account will change the figure of profit or loss previously arrived at.

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To ascertain the exact effect on profit or loss the following points should be noted:

  • If an amount has been wrongly written on the debit side of a nominal account, it will reduce the profit or increase the loss.
  • If an amount to be credited to a nominal account is omitted, the profit will be reduced o the loss will be creased.
  • An omission of an amount dubitable to a nominal account will increase the profit or reduce the loss.
  • If an amount is wrongly entered on the credit side of nominal account, the profit will be increased or the loss reduced.
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