How do you correct a wrong journal entry: red storno, reversing entry or additional entry?
The amount was wrong, the account was wrong, or too little was recorded: each error has its own correction method. Using a plastic containers workshop as an example, we look at all three methods with their journal entries.
At the "Bunyodkor Plast" workshop, before the month was closed, chief accountant Kamola went over the October records once more and found three errors. The young accountant Sanjar said: "I'll just delete them and write them again." Kamola disagreed: in accounting, a record is not deleted, it is corrected. That way anyone can later see when the error happened and how it was put right.
There are three ways to correct an error: red storno, a reversing entry and an additional entry. Which one to choose depends on the type of error.
Which method fits which error?
| Type of error | Method | Essence |
|---|---|---|
| Accounts correct, amount overstated | Red storno | The wrong entry is repeated with a minus amount, then the correct entry is made |
| Wrong account chosen | Reversing entry | The wrong entry is recorded with the accounts swapped, then the correct entry is made |
| Accounts correct, amount understated | Additional entry | Only the missing difference is recorded additionally |
How were the three errors Kamola found corrected?
The amounts are hypothetical.
Error 1: amount overstated. Granules worth 4 500 000 soum were issued to the moulding machine, but the digits were mixed up and 5 400 000 soum was recorded. The accounts are correct: 2010 / 1010.
| Record | Debit | Credit | Amount |
|---|---|---|---|
| Wrong entry (made earlier) | 2010 | 1010 | 5 400 000 |
| Red storno | 2010 | 1010 | −5 400 000 |
| Correct entry | 2010 | 1010 | 4 500 000 |
The storno "cancels" the wrong entry without inflating the turnover: the minus amount reduces the turnover as well. As a result, exactly 4 500 000 soum remains on the debit of 2010.
Error 2: wrong account. Cleaning products worth 1 200 000 soum issued for cleaning the workshop building were charged to the cost of products, that is, to 2010. In fact this is a general production overhead and should have been 2510.
| Record | Debit | Credit | Amount |
|---|---|---|---|
| Wrong entry (made earlier) | 2010 | 1010 | 1 200 000 |
| Reversing entry | 1010 | 2010 | 1 200 000 |
| Correct entry | 2510 | 1010 | 1 200 000 |
After the reversing entry, the excess amount leaves 2010, the materials "return" to the warehouse, and then they are charged to the correct account.
Error 3: amount understated. Paper and cartridges worth 800 000 soum issued for the office were entered as 80 000 soum. The accounts are correct: 9420 / 1010.
| Record | Debit | Credit | Amount |
|---|---|---|---|
| Wrong entry (made earlier) | 9420 | 1010 | 80 000 |
| Additional entry | 9420 | 1010 | 720 000 |
The difference is 800 000 − 80 000 = 720 000 soum. Now 9420 holds the full 800 000 soum.
What should be checked after the correction?
- Look again at the new balances of the corrected accounts in the trial balance
- The balance of 1010 must match the actual stock in the warehouse
- Add a note to each correcting entry: which entry of which date was corrected and why
- Keep the basis for the correction (an accounting memo) together with the primary documents
If the error has made its way into the previous year's financial statements, this is not an ordinary correction within the month: the procedure for reflecting it is set out separately in Chapter 10 of NAS No. 1 (the "Material (significant) errors" section, paragraphs 114–118).
Test yourself
5 questions on this topic: pick an option or reveal the answer.
An accountant found a wrong journal entry. He recorded that entry again with exactly the same accounts but with a minus (negative) amount, and then made the correct journal entry. What is this correction method called?
At the end of the month, the costs of the auxiliary workshop of Marg'ilon Mebel LLC were added to the cost of primary production output. Which journal entry is made?
In the current period, "Uchqo'rg'on non" LLC handed over finished products against an amount received in the previous reporting period and held in 6230 "Other deferred income". What journal entry adds this revenue to sales?
Because of an error by the accountant of "Paxtachi mebel" LLC, a carpenter was overpaid 650,000 soums of wages. The carpenter paid this amount back into the cash desk. Which journal entry is made?
"Oqsaroy mebel" LLC decided to increase its charter capital. The amendments to the founding documents have not yet been state-registered, but a participant paid in an additional contribution in cash to the settlement account. Under NAS No. 21, what journal entry is made?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- NAS No. 21 "Chart of Accounts", paragraph 104 · issue of materials to production (2010, 2510) and for administrative needs (9420): from the credit of 1010–1090
- NAS No. 21, paragraphs 120 and 130 · 2010 / 1010–1090 (direct material costs) and 2510 / 1010–1090 (materials for general production purposes)
- NAS No. 1 "Presentation of Financial Statements and Accounting Policies", Chapter 10 (paragraphs 114–118) · reflecting material errors in the financial statements of prior periods
- Example and amounts · prepared by the author, hypothetical