ACCOUNTING ERRORS
Accounting errors are those mistakes which occurs in the book keeping or accounting, relating to a routine activity or relating to the principle of accounting.
Classification of Accounting errors
Accounting errors are classified in to four types on the basis of nature of Errors.
1) ERRORS OF OMISSION
This occurs when a transaction is completely left out or omitted from the accounting entries.
EXAMPLE ... Credit purchases of goods $100.from Al Binno omitted from the records.
The omitted entries will need to be entered.
2) ERRORS OF COMMISSION
When a transaction is entered in the books of accounts in wrongly, this may be entered as partially or incorrectly.
EXAMPLE ...Cash of $200 received from debtor V. Green entered correctly to cash but incorrectly to W. Green’s account.
The error will need to be corrected in W. Green’s account and entered correctly to V. Green’s account.
3) Errors of Principles
This occurs where an entry is made to the wrong classification of account.
EXAMPLE ...Cash of $400 paid for motor expenses correctly credited to cash account but incorrectly debited to motor van account.
The incorrect entry will need to be subtracted from motor van account and correctly entered to motor expense account.
4) Compensating Errors
These occur where two or more accounting errors cancel out their effect on the trial balance.
EXAMPLE ...Purchases account is overcast or overstated by $500; while $500 is omitted from the rent account.
An account is said to be overcast when its total is in excess of the correct amount, and under-cast when the total is less than the correct amount.$500 will need to be deducted from the purchases account and $500 added to the rent account.
