A correcting journal entry is the difference between the wrong entry and the right entry. Find what was posted, find what should have been posted, and write a journal entry for only the gap.
This lesson is part of SPM Accounting correction of errors. It assumes you can already name the error, which is covered in classifying accounting errors.
What is the three-line method?
Write each line on scratch paper before touching the journal. It suits errors that leave the trial balance balanced.
- Wrong entry: write the debit and credit that were actually posted.
- Right entry: write the debit and credit that should have been posted.
- Correction: cancel the wrong accounts, then post the right accounts.
Worked example 1: commission
Electricity of RM120 was paid in cash but debited to Rent. The wrong entry was Dr Rent 120, Cr Cash 120. The right entry is Dr Electricity 120, Cr Cash 120.
The Cash line is right in both, so it needs no correction. Only the debit is in the wrong account:
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Electricity | 120 | |
| Rent | 120 |
Narration: being correction of electricity debited to Rent in error.
Worked example 2: omission and original entry
A credit sale of RM300 to Ali was left out. Nothing was posted, so the whole right entry is the correction: Dr Ali 300, Cr Sales 300.
Another sale was recorded as RM450 instead of RM540 on both sides. The gap is RM90, so the correction is Dr Debtor 90, Cr Sales 90. Correcting with the full RM540 would overstate the sale.
Worked example 3: reversal
A payment of RM80 to creditor Chen was posted as Dr Cash 80, Cr Chen 80. The right entry is Dr Chen 80, Cr Cash 80.
The wrong entry left Cash RM80 too high in debit and Chen’s account RM80 too high in credit. Each account needs to move by RM160 in total, so the correction is Dr Chen 160, Cr Cash 160.
The mistake that halves the correction
Students sometimes write Dr Chen 80, Cr Cash 80 for a reversal, because that is the right entry. Posting it alone leaves the original wrong entry in place, so each account is still RM80 out.
Check with Chen’s account. The wrong entry credited Chen RM80 when it should have debited RM80. Posting Dr Chen 80 only cancels the wrong credit, and the real payment is still missing.
Check yourself
A machine costing RM2 000 was paid in cash and debited to Purchases. Write the correcting journal entry with a narration.
Answer
Wrong entry: Dr Purchases 2 000, Cr Cash 2 000. Right entry: Dr Machinery 2 000, Cr Cash 2 000.
Correction: Dr Machinery 2 000, Cr Purchases 2 000. Narration: being correction of machine purchased debited to Purchases in error.
The Cash credit was right, so it is not touched.
What to study next
Move to calculating the effect on profit, where the same entries are used to find how much profit changes. Then test your entries with the correction of errors practice set.
If you want a teacher to go through your own correcting entries line by line, see online one-to-one Accounting tuition.