When the business transactions
are recorded in the books of accounts there remains a possibility of accounting
errors. It may be because of hastiness in writing, negligence, oversight or
incomplete knowledge of the principles of accountancy. Some times in order to
manipulate the books of accounts, errors are committed intentionally.
are recorded in the books of accounts there remains a possibility of accounting
errors. It may be because of hastiness in writing, negligence, oversight or
incomplete knowledge of the principles of accountancy. Some times in order to
manipulate the books of accounts, errors are committed intentionally.
Irrespective of whether the
accounting errors are committed innocently or intentionally they cannot be
rectified by erasing with the help of an eraser. Necessary accounting effects
are to be given in accounts in order to rectify these errors. Sometimes in an
error affects two accounts. In order to rectify the same, a journal entry is
passed which is known as a rectification entry and it is recorded in journal
proper
accounting errors are committed innocently or intentionally they cannot be
rectified by erasing with the help of an eraser. Necessary accounting effects
are to be given in accounts in order to rectify these errors. Sometimes in an
error affects two accounts. In order to rectify the same, a journal entry is
passed which is known as a rectification entry and it is recorded in journal
proper
Table of Contents
MEANING OF ACCOUNTING ERRORS
Accounting errors are the mistakes
committed in book keeping and accounting. The mistake may be one relating to
routine or one relating to principle. Accounting error are unintentional
mistakes in book-keeping of transactions. Accounting error are different from
accounting fraud because in fraud an intentional mistake is made to
misrepresent financial information or to conceal misappropriation of assets.
committed in book keeping and accounting. The mistake may be one relating to
routine or one relating to principle. Accounting error are unintentional
mistakes in book-keeping of transactions. Accounting error are different from
accounting fraud because in fraud an intentional mistake is made to
misrepresent financial information or to conceal misappropriation of assets.
An error of principle is an
accounting mistake in which an entry is recorded in the incorrect account, violating
the fundamental principles of accounting. The type of error is the error of principle
and clerical error. The clerical error includes the error of commission, the error of omission,
compensating error, and error of principle.
ERROR WHICH DO NOT
ERROR WHICH AFFECTS THE
accounting mistake in which an entry is recorded in the incorrect account, violating
the fundamental principles of accounting. The type of error is the error of principle
and clerical error. The clerical error includes the error of commission, the error of omission,
compensating error, and error of principle.
TYPES OF ACCOUNTING
ERROR
·
Error which does not
affect the trial balance.
Error which does not
affect the trial balance.
·
Error which affects the
trial balance.
Error which affects the
trial balance.
ERROR WHICH DO NOT
AFFECT THE TRIAL BALANCE:
- Errors of omission
- Error of principle
- Error of recording to a
wrong account - Errors committed at the
time of recording in primary books (Error of commission) - Compensatory errors
ERROR WHICH AFFECTS THE
TRIAL BALANCE:
- Error regarding posting
balance of an account - Errors in totaling the
subsidiary books. - Errors committed at the
time of preparing the trial balance.
(1). ERROR OF OMISSION
(1). ERROR OF OMISSION
An error of omission is an
error when a transaction is completely or partially omitted from being
recorded in the books of accounts. When a transaction is completely or
partially omitted to be recorded in books of accounts it is called error of
omission. Goods purchased on credit from Mr. A, this transaction is not
recorded in the purchase journal. This is called an error of complete omission.
error when a transaction is completely or partially omitted from being
recorded in the books of accounts. When a transaction is completely or
partially omitted to be recorded in books of accounts it is called error of
omission. Goods purchased on credit from Mr. A, this transaction is not
recorded in the purchase journal. This is called an error of complete omission.
EXAMPLE: Rs. 1000 received from Rahul is left unrecorded.
RECTIFICATION: BY writing correct journal entry for this transaction the above error will be rectified.
(2). ERROR OF COMMISSION
(2). ERROR OF COMMISSION
It is those errors which
arise due to wrong recording, wrong posting, wrong carrying forward, wrong casting
(totaling) of subsidiary books, wrong balancing.
arise due to wrong recording, wrong posting, wrong carrying forward, wrong casting
(totaling) of subsidiary books, wrong balancing.
·
Error of recording- the wrong amount
Error of recording- the wrong amount
·
Error of casting- totaling error
Error of casting- totaling error
·
Error of carrying forward
Error of carrying forward
·
Error of posting on the wrong side
Error of posting on the wrong side
·
Error of commission results in disagreement of trial balance.
Error of commission results in disagreement of trial balance.
EXAMPLE: Goods of Rs. 5000 purchased from Mayuri is recorded by mistake as Rs. 500.
RECTIFICATION: To rectify the error reverse entry will be passed with the
amount of difference Rs. 4500
amount of difference Rs. 4500
(3). COMPENSATING ERROR
(3). COMPENSATING ERROR
when one mistake nullifies the wrong effect
of another it is called a compensating error. These are two or more errors in
number and balance each other. These are generally arithmetical errors.
of another it is called a compensating error. These are two or more errors in
number and balance each other. These are generally arithmetical errors.
EXAMPLE: The total purchase book is overcast by Rs. 500 and receipt
of Rs. 500 from Anita is posted to her account by Rs.1000.
of Rs. 500 from Anita is posted to her account by Rs.1000.
RECTIFICATION: To
rectify this we will debit the Anita account and credit purchase account by 500.
(4). ERROR OF PRINCIPLE
(4). ERROR OF PRINCIPLE
These are errors arising from net observing
the accounting principles correctly eg wages paid for the installation of machinery
debited to wages a/c, purchase of fixed assets on credit recorded in the purchase
journal. These errors will not affect the trial balance.
the accounting principles correctly eg wages paid for the installation of machinery
debited to wages a/c, purchase of fixed assets on credit recorded in the purchase
journal. These errors will not affect the trial balance.
EXAMPLE: Rs. 2000 worth furniture purchase is debited to purchase
accounts. Here purchase of furniture should be debited to furniture account but
purchase account is wrongly debited by Rs.2000.
accounts. Here purchase of furniture should be debited to furniture account but
purchase account is wrongly debited by Rs.2000.
RECTIFICATION: To nullify this effect, purchase account should be credited
by Rs.2000 and furniture account is to be debited by Rs.20000.
by Rs.2000 and furniture account is to be debited by Rs.20000.
(5). ERRORS OF RECORDING TO A WRONG ACCOUNT
In such type of an error,
journal entry is written correctly but while posting, instead of giving the
effect to the correct account by mistake the effect is given to some other
account. Thus by debiting or crediting a wrong account with correct amount, on
the correct side, the trial balance remains unaffected.
journal entry is written correctly but while posting, instead of giving the
effect to the correct account by mistake the effect is given to some other
account. Thus by debiting or crediting a wrong account with correct amount, on
the correct side, the trial balance remains unaffected.
EXAMPLE: Rs. 100 received from Rahul, is credit to Rohan’s account. Here at the
time of posting, instead of Rahul’s account, Rohan’s account is wrongly
credited.
time of posting, instead of Rahul’s account, Rohan’s account is wrongly
credited.
RECTIFICATION: To cancel the wrong effect, debit Rohan’s account and give
the correct effect, credit Rahul’s account. Thus, the error will be rectified.
the correct effect, credit Rahul’s account. Thus, the error will be rectified.