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Error in Accounting

The document discusses 5 categories of errors in accounting: errors of commission, errors of omission, errors of duplication, compensating errors, and errors of principle. Errors of commission are mistakes in posting, totaling, calculations, balancing or carrying amounts forward. Errors of omission occur when transactions are not recorded at all or partially. Errors of duplication arise from double recording of transactions. Compensating errors offset each other. Errors of principle violate accounting principles.

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Mr. Fox
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44 views

Error in Accounting

The document discusses 5 categories of errors in accounting: errors of commission, errors of omission, errors of duplication, compensating errors, and errors of principle. Errors of commission are mistakes in posting, totaling, calculations, balancing or carrying amounts forward. Errors of omission occur when transactions are not recorded at all or partially. Errors of duplication arise from double recording of transactions. Compensating errors offset each other. Errors of principle violate accounting principles.

Uploaded by

Mr. Fox
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Error in Accounting

Mistakes committed unintentionally and unknowingly at any stage of accounting are termed as
errors. Errors can broadly be classified into five categories viz.

(i) Errors of Commission

(ii) Errors of Omission

(iii) Errors of Duplication

(iv) Compensating Errors

(v) Errors of Principle.

These are discussed below.

(a) Errors of Commission Errors arising out of wrong posting (either wholly or partially), wrong
totaling, wrong calculations, wrong balancing and wrong carry forward are termed as errors of
commission. Some of these errors may affect the trial balance while some others may not.

Example:

(i) Purchase of goods for a 10000 may be entered as a 1000 in the Purchase Day Book. This
error will not affect the trial balance.

(ii) Purchase of goods for a 10000 posted to the debit side of supplier’s account. This error will
not affect the trial balance.

(b) Errors of Omission Such errors arise when transactions are not recorded either wholly or
partly in the books of accounts. Full omission takes place if a transaction is not at all recorded in
the books of original entry.

Example: Goods sold to Mr. X for a 10000 were not recorded in the Sales Day Book at all.

On the other hand partial omission occurs when a transaction is recorded partially.

Example: Goods sold to Mr. X for a 10000 was not posted to Mr. X A/C.

Error due to full omission will not affect the trial balance and hence is difficult to detect. On the
other hand, errors due to partial omission will affect the trial balance and can be detected easily.

(c) Errors of Duplication Such errors arise because of double recording of the same transaction.
Double posting of a transaction from journal to ledger create such errors as well.

Example:
(i) Goods sold to Mr.X have been recorded twice in the primary books. This error will not affect
the trial balance.

(ii) Goods sold to Mr.X have been posted twice in the account of Mr. X. This error will affect
the trial balance.

(d) Compensating Errors When two errors are committed in such a way that effect of one gets
offset by another, they are known as compensating errors.

Example: Peter’s account which was to be debited for a 10000 was debited for a 1000 and

similarly, John’s Account which was to be credited for a 10000 was credited by a 1000. These
two errors nullify the effect of each other. Hence they are compensating error.

(e) Errors of Principle

Such errors take place when, at the time of recording a transaction, the fundamental principles of
accounting are not properly followed. Incorrect allocation of expenditure between capital and
revenue, incorrect presentation of items in financial statements are some of the reasons for such
errors.

Example: Wages paid on installation of Machinery wrongly debited to Wages Account.

This type of errors occurs due to lack of knowledge of sound principles of accounting or can
even be committed purposely to forge the accounts. In order to detect such errors, the auditor has
to carry out a vigilant inspection of the books of account.

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