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Classification of Errors

Broadly, errors can be classified as errors of principle and clerical errors
 

Errors of principle are caused when the amount received or spent are not properly allocated between capital and revenue accounts. In other words, those transactions which are recorded in a fundamentally incorrect manner are errors of principle.
 

Example: Furniture purchased for cash debited to Purchase book.

 

Effect on Trial Balance -The trial balance will agree.
 

To rectify these types of errors we need to reverse the wrong entry to nullify the effect of the wrong entry and pass the entry which was supposed to be passed. We will learn this in detail little later in this unit.

Clerical errors could be either in form of errors of omission or errors of commission or compensating errors

  • Errors of omission can be error of complete omission and error of partial omission.
    • Error of complete omission is when both, debit and credit are omitted to be recorded in the books. It may be omitted to be recorded in the books of original entry only or the transaction is recorded in the general journal but is not posted to the ledger at all.

Example: Cash paid to buy raw material completely omitted to be recorded.

 
Effect on Trial Balance - As both the sides have been omitted the trial balance will agree.
 
The omission is rectified by recording the transaction by passing the usual journal entry.
  • Error of partial omission is when either debit or credit is omitted to be recorded in the books. Since, only one aspect, either debit or credit, is recorded, the total debit balances will not be equal to the total credit balances in the Trial Balance.

Example: Goods worth ₹ 10,000 purchased from Asma Pvt. Ltd. were posted only to the debit side of the Purchase A/c but not credited to Asma Pvt. Ltd. A/c.

 
Effect on Trial Balance - This error causes a difference in the Trial Balance and trial balance will not agree.
 
These type of errors can be rectified by posting to the account omitted earlier.
  • Errors of commission - This error arises when any transaction is incorrectly recorded in the books of original entry.
    • Error of recording– This error arises when any transaction is incorrectly recorded in the books of original entry.

Example: Goods of ₹ 10,000 purchased on credit from Manish are recorded in the Sales book.


Effect on Trial Balance -
In this case, trial Balance will agree.

 

These errors are rectified by the rule: Cancel Wrong Effect and Record Right Effect

  • Error of wrong casting – The error arises when a mistake is committed in totaling.

Example: Purchase book is totalled as ₹ 2,000 instead of ₹ 200 or Sales book is totalled as ₹ 400 instead of ₹ 4,000

 

Effect on Trial Balance -In this case trial balance will not agree.
 

This type of error will be rectified by reducing or increasing the balance from the respective account to the extent of amount of mistake committed.

  • Error in posting – Errors like posting twice, posting on wrong side of an account, posting wrong amount or multiple errors

Example: A Sales invoice for ₹ 6,900 raised on Mehta & Co. may be posted in the account of Mehta Traders which is the wrong account and for the amount ₹ 69,000 which is again wrong amount.


Effect on Trial Balance -
In such scenarios the Effect on Trial Balance will depend upon the nature of errors, however, in most cases it will not agree.
 

This type of error will be rectified by reducing or increasing the balance from the respective account to the extent of amount of mistake committed.

  • Error in carrying forward - This error arises when a mistake is committed in carrying forward a total of one page to the next page

Effect on Trial Balance- In this case trial balance will not agree.

 

Example: Total of Purchase book is carried forward as ₹ 5,000 instead of ₹ 500

 

This type of error will be rectified by reducing or increasing the balance from the respective account to the extent of amount of mistake committed

  • Error of wrong balancing of an account - This error arises when a mistake is committed in balancing the account either by balancing wrong side or balancing wrong amount.

Example: Purchase ledger being debit balance for ₹ 20,000 written on wrong side as ₹ 2,000.

 

Effect on Trial Balance- In this case trial balance will not agree.
 

This type of error will be rectified by reducing or increasing the balance from the respective account to extent of amount of mistake committed

  • Compensating errors occur when the effect of one error is compensated by another error. Thus, there is no net effect on the amounts in the Trial Balance and the Trial balance will agree.

Example: A sale invoice No. 12 for ₹ 1,000 on ‘Mahaveer’ is posted into the account of ‘Veeru’; and another sale invoice No. 22 for ₹ 1,000 on ‘Veeru’ is posted into the account of ‘Mahaveer’. The posting error in the first entry is compensated by the posting error in the second entry

 

Effect on Trial Balance- In this case trial balance will agree.
 

These errors are also rectified by the rule: Cancel Wrong Effect and Record Right Effect





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