These errors occur even when the double-entry principle is followed correctly, but they are posted to the wrong accounts or in wrong amounts. The trial balance still balances because equal debits and credits are recorded, though to incorrect accounts.

1. Errors of Commission

These occur when the correct amount is posted to the wrong account within the same class of accounts (e.g., posting a sale to the wrong customer's account).

Example: A credit sale of TZS 500,000 to Hamisi was posted to Hassani's account instead.

• Both accounts are personal accounts (debtors)
• Trial balance remains balanced
• But profit is correctly stated, and the statement of financial position misstates debtors

2. Errors of Principle

These occur when a transaction is posted to the wrong class of account (e.g., a capital item posted to an expense account). This violates the basic accounting principle of distinguishing between capital and revenue items.

Example: A motor van purchased for TZS 2,000,000 was debited to Motor Expenses account instead of Motor Van account.

• Motor expenses is an expense account (nominal)
• Motor van is a non-current asset (real)
• This error affects profit and the statement of financial position

3. Errors of Original Entry

These occur when the original entry in the book of prime entry contains an incorrect amount, which is then correctly posted to the ledger.

Example: Cash purchases of TZS 150,000 were recorded as TZS 105,000 in the cash book and posted as TZS 105,000 to purchases.

• The error is in the original amount recorded
• Trial balance still balances because the same wrong amount appears on both sides

4. Transposition Errors

These occur when digits are accidentally reversed when recording a transaction.

Example: A credit sale of TZS 350,000 was entered as TZS 305,000.

• The difference (TZS 45,000) is the transposition error
• Trial balance still balances because debits equal credits, both at the wrong amount

Errors affecting nominal accounts (revenue and expenses) directly impact the reported profit or loss.

Effect on Profit

Key rule: If an expense is overstated, profit is understated. If an expense is understated, profit is overstated. Revenue errors work inversely.

Errors affecting personal accounts (debtors, creditors) and real accounts (assets) distort the statement of financial position without affecting profit.

Effect on Statement of Financial Position

Mwanajuma Traders prepared an income statement showing net profit of TZS 3,500,000. Subsequent investigation revealed the following errors:

1. Purchases of furniture for office use, TZS 800,000, were posted to Purchases account (error of principle)
2. Credit sales of TZS 120,000 to Juma were posted to the account ofuma (error of commission)
3. Cash purchases of TZS 250,000 were recorded as TZS 205,000 in the cash book (error of original entry)
4. A credit sale of TZS 180,000 was entered as TZS 108,000 (transposition error)

Required:

Analyse the impact on the reported profit and prepare the corrected net profit.

Solution

Step 1: Identify each error's effect

Step 2: Calculate corrected net profit

Step 3: Statement of financial position effects

• Furniture should be in non-current assets (not purchases)
• Debtors: Juma's account understated by TZS 120,000,uma's account has TZS 120,000 that should be removed
• Net profit correction increases equity by TZS 683,000

A small shop owner in Mwanza running a retail kiosk records all transactions manually in exercise books. If they accidentally record a fridge bought for the shop (capital expenditure of TZS 350,000) as "shop expenses" instead of recording it as an asset, their monthly profit will appear TZS 350,000 lower than it actually is. This could lead them to think the business is struggling when it is actually performing well. Similarly, if they post a customer's payment of TZS 50,000 to the wrong person's account, their debtors' list becomes unreliable, making it difficult to collect outstanding payments and manage the business's cash flow effectively.