Concept of errors

Introduction

An error is a mistake, especially one that causes problems or affects the results. When spotted, the error or mistake is often immediately fixed. If there is no immediate resolution, an investigation into the error is conducted. In bookkeeping, an error should not be confused with fraud, which is an intentional act to hide or alter entries for the benefit of the firm. Although there are numerous types of errors, the most common errors are either clerical mistakes or errors in accounting principles.

In bookkeeping, errors are grouped into:

1. Errors which do not affect the trial balance
2. Errors which affect the trial balance

Errors which do not affect the trial balance

A trial balance is prepared when transactions posted into the accounts are balanced up. The trial balance is then prepared to check the accuracy of those posted transaction. It is normal sometimes that some errors may be apparent but despite this, they may not affect the trial balance.

Different types of errors which don't affect the trial balance

i. Error of omission:

This is a mistake that consists of not doing something you should have done, or not including something such as an amount of fact that should be included. This happens wherein the full transaction is omitted from the books of accounts.

Example: Credit sales to R. Anthony worth Tshs 10,000 has not been recorded anywhere. We must correct this by entering the sale in the books. The journal entries for the correction are now shown below:

DETAILS	DR	CR
R. Anthony	10,000
Sales account		10,000
Being error of omission is now corrected

ii. Error of commission:

Error of commission is an error that occurs when a bookkeeper or accountant records a debit or credit to the correct account but to the wrong subsidiary account or ledger.

Example: Credit Purchase from R. Balewa worth Tshs 15,000 was entered in error in B. Balewa's account. To correct this, the journal entry will be:

DETAILS	DR	CR
B. Balewa	15,000
R. Balewa		10,000
Being error of commission now corrected

iii. Error of principle:

Errors of principle are often simply accounting entries recorded in the incorrect account. The amounts are often correct, unlike an error in the original entry. Oftentimes, the error of principle is a procedural error, meaning that the value recorded is correct but the entries are made in the wrong accounts.

Example: The Purchase of a machine, Tshs 600,000 is debited to the purchase account instead of being debited to a machinery account.

DETAILS	DR	CR
Machinery Account	600,000
Purchase Account		600,000
Being error of principle now rectified

iv. Compensating error:

Compensating error is when one error has been compensated by an offsetting entry that's also in error.

Example: A sale has been overcast by Tshs 50,000 and purchases have been over added with the same amount.

DETAILS	DR	CR
Sales Account	50,000
Purchase Account		50,000
Being Compensating error now rectified

v. Error of complete reversal of entries:

These errors occur when we debit and credit the two or more aspects of a transaction wrongly using correct figures or amounts.

Example: A payment of cash Tshs. 40,000 to Mr Clavery was entered on the receipt side of the cash book in error and credited to Mr Clavery's account. To correct the errors, the journal entries will be:

DETAILS	DR	CR
Mr Clavery	40,000
Cash Account		40,000
Being error of complete reversal of entries is now corrected

vi. Error of original entry:

An error of original entry is when the wrong amount is posted to an account. The error posted for the wrong amount would also be reflected in any of the other accounts related to the transaction. In other words, all of the accounts involved would be in balance but for the wrong amounts.

Example: A credit Purchase from Euginian worth Tshs 850,000 has been recorded in the books as Tshs 580,000. To correct the errors, the journal entries will be:

DETAILS	DR	CR
Purchase Account	270,000
Euginian Account		270,000
Being error of the original entry is now corrected

Errors and the trial balance

Errors affecting the agreement of a trial balance

The errors for which a trial balance disagrees are of a wider range. Generally, these are divided into three groups:

1. Errors in costing and balancing Two sides of ledger accounts are totalled for finding out balance; of the accounts. Errors committed to totalling lead to errors in balancing.

2. Errors in posting accounts in the ledger from the original books These errors may happen in different ways. For Example; while transferring from the journal if a transaction is recorded in only one account in the ledger or recorded on the wrong side of an account or the wrong amount is posted in an account.

3. Errors in transferring ledger balance to a trial balance The trial balance disagrees if ledger account balances are not correctly transferred.

From the viewpoint of effects, errors are grouped into two:

1. One-sided errors The errors, which affect only one side of accounts, are termed one-sided errors. One-sided errors hamper the agreement of the trial balance. Therefore, in case of such an error suspense account is used to make the totals of the trial balance equal, e.g. if the debit money column is short-fall the suspense account be used for that shortage and vice-versa.

2. Double-sided errors The errors which affect both debit and credit are termed double-sided errors. If the errors affect the debit and credit for an equal amount of money, the trial balance agrees. But if the errors affect debit and credit for the dissimilar amount, the trial balance disagrees. In such a case, a suspense account is used for an agreement on the trial balance.