A Trial Balance is said to be a statement of proof done arithmetically to prove that proper double was observed in making accounting entries. The assumption is that the Trial balance totals will not agree whenever there is an accounting error. There are several errors in fact which will not affect the agreement of the trial balance totals. This means that there are two basic types of accounting errors:
-Errors which do not affect the Trial balance totals
-Errors which do affect the trial balance totals
The correction of all accounting errors must be journalized by way of the General Journal.
Accounting errors not detected by the trial balance are listed below:
Error of Omission ─ this occurs when a transaction is completely left out or omitted from the accounting entries.
–Accounting Error: Credit purchases of goods $100.from Al Binno omitted from the records.
The omitted entries will need to be entered.
The correction is journalized below:
Error of Commission – This occurs where proper double entry is observed except an entry is made to the wrong personal account.
–Accounting Error: Cash of $200 received from debtor V. Green entered correctly to cash but incorrectly to W. Green’s account.
The error will need to be corrected in W. Green’s account and entered correctly to V. Green’s account.
The correction is journalized below:
Error of Principle – This occurs where an entry is made to the wrong classification of account.
–Accounting Error: Cash of $400 paid for motor expenses correctly credited to cash account but incorrectly debited to motor van account.
The incorrect entry will need to be subtracted from motor van account and correctly entered to motor expense account.
The correction is journalized below:
Compensating Errors – These occur where two or more accounting errors cancel out their effect on the trial balance.
–Accounting Error: Purchases account is overcast or overstated by $500; while $500 is omitted from the rent account.
An account is said to be overcast when its total is in excess of the correct amount, and under-cast when the total is less than the correct amount.
$500 will need to be deducted from the purchases account and $500 added to the rent account.
The correction is journalized below:
Error of Original Entry – With this type of error the accounts are entered correctly except with the wrong figures.
–Accounting Error: Cash drawings of $1000 entered to both Cash and Drawings accounts as $100.
$900 is needed to be added to both accounts to correct the errors.
The correction is journalized below:
Complete Reversal of Entries – When accounting entries are mistakenly reversed the entries are still debited to one account and credited to another.
–Accounting Error: Cash Payment for Furniture $77 debited to Cash account and credited to Furniture account.
The values of the entries to make corrections will need to be doubled. This is because the first entry is to correct the mistake and the second entry represents the actual entry.
The correction is journalized below:
Transposition Error – A Transposition Error occurs when entries are made to the correct account but the figures are not entered in the correct order.
–Accounting Error: Goods $25.returned inwards from W. Wugget entered to both accounts as $52.
Both accounts will need to be decreased by $27 to make corrections
The correction is journalized below:
