Summary
Accounting errors are mistakes made when recording financial transactions in the books of accounts. Identifying and correcting errors promptly is essential to ensure that financial records provide a reliable picture of business performance.
- Error of Omission — Transaction completely omitted from the books Example: Sale of $300 not recorded at all
- Error of Original Entry — Wrong amount entered in both debit and credit sides Example: Sale recorded as 200 in all accounts
- Error of Commission — Correct amount posted to wrong account of same type Example: Cash from D Dias posted to G Dias account
- Error of Principle — Entry made in wrong type of account Example: Asset purchase recorded as expense
- Compensating Errors — Two or more errors that cancel each other out Example: Sales overstated by 100
- Complete Reversal — Correct accounts used but debit and credit sides reversed Example: Debited account credited and credited account debited
Exam Tips
Key Definitions to Remember
- Accounting errors: Mistakes in recording financial transactions
- Error of omission: Transaction not recorded
- Error of principle: Wrong type of account used
Common Confusions
- Errors that do not affect trial balance totals
- Difference between error of commission and error of principle
Typical Exam Questions
- What is an error of omission? A transaction completely omitted from the books
- How do you correct an error of original entry? Adjust both debit and credit sides to reflect the correct amount
- What is the impact of an error of principle on financial statements? It can misstate expenses and assets, affecting profit and financial position
What Examiners Usually Test
- Ability to identify different types of errors
- Correcting errors using journal entries
- Understanding the impact of errors on profit and financial position