Errors Not Affecting The Trial Balance (Part 1 of 2)
This article discussed the different type of errors which do not affect the agreement of the Trial Balance.
When these type of errors are discovered, their correction is journalized in the General Journal to be posted to their respective ledgers.
|
Errors Of Omission |
|
Occurs when a transaction is being COMPLETELY OMITTED from the books Example: A cash receipt of $500.00 from a trade debtor, Mr.ABC has been omitted from the books The correcting entry should be: Debit: Bank $500.00 Credit: Mr ABC $500.00 Being omission of aforesaid entry now adjusted |
|
Errors Of Commission |
|
An entry has been posted to the correct side of the Ledger but to the wrong account. Example: Billing to Mr. A of $500.00 was wrongly posted to Mr B’s a/c [ both are trade debtors in the books of account] Debit: Mr. A $500.00 Credit: Mr. B $500.00 Being correction of error, sales to Mr. A wrongly debited to Mr. B’s account. |
|
Errors Of Principle |
|
A transaction which is incorrectly dealt with like should be taken up into expenses a/c (income statement) but now wrongly taken up into the balance sheet a/c Example: Office maintenance of $1,000.00 wrongly posted into Machinery a/c Debit: Office maintenance a/c $1,000.00 Credit: Machinery a/c $1,000.00 Being correction of error, revenue expenditure being treated incorrectly as capital expenditure |
|
Compensating Errors |
|
An error on the debit side being compensated by an error of equal amount on the credit side. Example: Purchases a/c was overcast by $1,000.00 and so is Sales a/c Debit: Sales A/c $1,000.000 Credit: Purchases a/c $1,000.00 Being correction of overcasts of $1,000 each in the Sales a/c and Purchases a/c which compensated for each other. |
|
Errors Of Original Entry |
|
A wrong amount is recorded in the subsidiary book and posted to the accounts Example: A sales to Mr. A $560.00 was entered in the books as $650.00 Debit: Sales $90.00 Credit: Mr. A’s a/c $90.00 Being correction of error, sales overstated by $90.00 |
|
Complete Reversal Of Entry |
|
This is where the correct accounts are used but each item is shown on the wrong side of the account. Example: Payment of $100.00 to trade creditor Mr. X was entered on the debit side of the Cash book in error and credited to Mr. X’s a/c This type of error requires an adjustment to cancel the error and the actual entry itself. Normally, this is done by one journal adjustment by doubling the actual amount first recorded. Debit: Mr X’s a/c $100.00 x 2 = $200.00 Credit: Bank a/c $200.00 Being correction of error, payment of cash to Mr. X $100.00 debited to cash and credited to Mr. X incorrectly. |
i am doing an assignment on Accounting, but i am not able to complete it by myself. I need your help. i would like to get some topics on some topics. i am waiting for your kind reply.
sincerely yours
Noyon
[…] Know how to correct errors which do not affect the agreement of the Trial Balance – go to illustrated examples in the section on Errors-Not-Affecting-the-trial-balance-part-1-of-2/ […]
please attempt for me this quiz
crake is a businessman operating a retail business in a small town. Due to the size of his business, he is not able to employ a qualified accountant on a permanent basis. The following information was extracted from the books of the business as at 31/ 10/06.
KSHS.
Freehold property (cost ) 600 000
Motor vehicles (NBV ) 750 000
Furniture and fittings ( NBV) 240 000
Stock 390 000
Trade debtors 500 000
Bank overdraft 60 000
Trade creditors 380 000
Accruals 15 000
10% loan 600 000
Provision for doubtful debts 25 000
The following transactions took place during the financial year ended 31/10/07.
1. Sales and purchases on credit amounted to sh. 2,080,000 and sh. 1,900,000 respectively.
2. The following transactions were carried out through the bank account.
KSHS.
Sales – cash 720 000
Purchases – cash 240 000
Payments to trade creditors 1,940 000
Purchase of furniture 200 000
Salaries and wages 160 000
Lighting 65000
General expenses 35000
Interest on loan 30 000
Drawings 60000
Repayment of loan on 30 / 4/2007 100 000
Collections from trade debtors 1,890 000
Proceeds from sale of motor vehicle 120 000
3. The business depreciate motor vehicles at 20% per annum on a reducing balance basis. A full years depreciation is provided on a motor vehicle acquired in the course of the year and no depreciation is provided on a motor vehicle disposed in the course of the year.
4. Furniture is depreciated at 10% per annum on cost and in proportion to the period used in the year. The additional furniture was purchased on 1 May 2007, while the cost of furniture held on 31 / 10/06 was sh. 400000.
5. Loan interest paid was for one – half year up to 30/4/07
6. The business received discount of sh. 40000 and allowed discounts of sh. 70 000.
7. Bad debts of sh. 20000 were written off. Provision for doubtful debts is to be maintained at 5% of the debtors balance at the end of the year.
8. Accruals are in respect of lighting and on 31/10/07 the amount accrued was sh.19000.
9. Muthusis business obtains a normal gross profit rate of 25% on selling price required.
(a) Trading profit and loss account for the year ended 31 / 10 /10 (18 marks)
(b) Balance sheet as at that date (12 mks)
Cash sales was entered in the bank account $1466. is this a commission error or principle error