What are the errors and the types of errors?
- 7 Answers
- 20478 Views
- Accenture, Genpact, I also Faced
- E-Mail Answers
Answer Posted / suresh mistry
2. Errors can be classified into the following four categories on the basis of the nature of errors and explained here under
Errors of commission
Errors of omission
Errors of principle
Compensating (offsetting) errors
Errors of Duplication
Errors of Commission
These errors by definition are of clerical nature. These errors may be committed at the time of recording and/or posting. At the time of recording, the wrong amount may be recorded in journal which will be carried throughout. Such errors will not affect the agreement of the trial balance. These errors may also be committed at the time of posting, by way of posting wrong amount, to the wrong side of an account or in the wrong account. The errors resulting in posting to wrong account will not affect agreement of trial balance, whereas, other errors of posting will resulting disagreement of trial balance.
For example, an amount of Rs. 10,000 received from customer (Debtor) is correctly recorded on the debit side of the cash book but while posting, the customer's account is credited with Rs. 1,000. This is an error, which is committed at the time of posting, by posting wrong amount to the account. This will result in disagreement of trial balance, since, the credit total of the trail balance will be short by Rs. 9,000.
Errors of Omission
The errors of omission may be committed at the time of recording the transaction in the books of original entry or while posting to the ledger. An omission may be complete or partial. Such errors are known as errors of omission.
For example, Machinery purchased for Rs. 50,000 by issuing a cheque is recorded first in the credit side of cash book, in the bank column. Suppose it is not posted to the debit of machinery account, it is an error of partial omission. The trial balance will not tally. Suppose the transaction is not entered in the cash book and hence ignored completely, this is a case of complete omission. It means as if the transaction has not taken place at all. It will not affect the trial balance and hence the trial balance will tally. This is true only in case of complete omission.
See also:
Trial Balance Error
Steps taken to identify errors of the trial balance, Identifying the errors of the trial balance, Overcoming with the errors of the Trial Balance...
Errors of Principle
Accounting entries are recorded as per the generally accepted accounting principles. If any of these principles are violated or ignored, errors resulting from such violations are known as errors of principle. As an illustration, Periodicity principle requires maintaining proper distinction between capital and revenue items. An error of principle may occur due to incorrect classification of expenditure or receipts between capital and revenue. This is very important because it will have an impact on financial statements. It may lead to under/over stating of income or assets or liabilities, etc.
For example, amount spent on additions to the buildings should be treated as capital expenditure and must be debited to the asset account. Instead, if this amount is debited to maintenance and repairs account, it is treated as a revenue expense. This is an error of principle. Since instead of asset account, i.e. buildings, the maintenance and repairs account (expense) is debited, the trial balance will still tally but would not be correct as per generally accepted accounting principles.
Such errors are not disclosed by the trial balance. This will result in understating of income due to extra charge under maintenance and repairs account and understating the value of buildings in the balance sheet.
Compensating Errors
When two or more errors are committed in such a way that the net effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors. They do not effect the tallying of the trial balance.
For example, In a credit sale transaction, the sales account is credited in excess by say, Rs.5,000 and similarly the suppliers account in case of a credit purchase is understated by Rs.5,000, this is a case of two errors compensating for each others effect. It is to be noted that extra credit to the sales account is offset by lower credit to the creditor's account, both being credit balance. Since, one plus is set off by the other minus, the net effect of these two errors being of compensating nature and do not affect the agreement of trial balance.
Errors of Duplication
Such errors arise when an entry in a book of original entry has been made twice and has also been posted twice.
| Is This Answer Correct ? | 14 Yes | 0 No |
Post New Answer View All Answers
Dear sir i had been called for ntpc interview and gd next month..please guide me for it!
1.explain the accounting concepts ? 2.what are the objectives of preparing a trail balance ?
i engaged with the accounts of manufacturing concern, i have a question when we purchased a fixed assets and after this we put the fuel in this for trial then this fuel is our also capital exp
Define The Term Journal And Explain The Present Day Use?
what do you mean by jounal voucher? Jounal entry for dishonored cheque can be possible thruogh jv?
what is the use of accounting standards
where is suspense entry is entered in tally erp9
What is the meaning of Debt reconciliation and how to do debt reconciliation?
SOUTH ATLANTIC OIL AND GAS INC.is a fraud company
honararium for the month of march 2013 can be paid on 31 mar 2013
I want to know with example of vat & Salestax
Please send the clerical exam questions and answers to my mail Id pinky18.02.1985@gmail.com
Expand BFSI
WHAT IS THE PROFILE OF FINANCE EXECUTIVE IN TEXTILE INDUSTRY
Breif notes about accounting standards
