Chapter 14 - Correction of Errors

Let's move onto corrections of errors😀

💨This topic if it comes out would be most probably in the form of a question on itself:- 

Errors not revealed by a trial balance means that the trial balance still ties which is Debit = Credit, but there are errors due to :- posting of wrong amount or wrong account or on the wrong side of the account (Dr/Cr). 

There are 6 errors not revealed by a trial balance namely: -

1. Error of omission 

2. Error of commission

3. Error of principle 

4. Error of original entry

5. Error of complete reversal

6. Compensating Errors

Lets elaborate more on the 6 errors below:- 

💥1. Error of omission 

Error of omission means that the transaction is not recorded at all. 

💥2. Error of commission 

Error of commission means that the transaction is recorded on the correct side with the right amount but under wrong account of the same class.

For e.g. Trade receivable - Mypoateacher paid $1,000 to settle his outstanding amount. However, when passing the transaction journal entry, the account clerk  Dr Bank Cr Trade Receivable Mr Squid instead. From here you can see that the Dr portion which is Debit bank is corret but Cr portion, he should have Cr Trade Receivable - Mypoatacher instead of Cr Trade Receivable - Mr Squid. 

💥3. Error of principle

Error of principle means that the transaction is recorded on the correct side with the right amount but under wrong account of the different class.

A transaction for the purchase of inventory on cash of $500, the account clerk could Debit Trade Creditor $500 Cr Cash at bank $500, when the correct transaction should be Dr Inventory $500 Cr Cash at bank $500, henceforth the Debit is correct side and the Debit $500 is correct amount, it is jus the wrong account of the different class.  

**What separates an 3. Error of principle from an 2. Error of commission is that error of principle involves posting to a wrong account of the correct/same class while error of principle refers to posting to a wrong account of a different class, the amount and the sides are correct. 

💥4. Error of original entry 

Error of original entry means that when the transaction is first recorded, it is recorded on the correct side, under correct account of the same class but Wrong amount. 

An drawing transaction which the owner takes $500 cash for his own use from his business - instead of passing Dr Drawings $500 Cr Cash at bank $500, the owner pass Dr Drawings $50 Cr Cash at bank $50, the side/class and accounts are correct except the amount is wrong.

💥5. Error of Complete reversal 

Error of complete reversal means the correct accounts and correct amounts are posted except is made on the wrong side of the both accounts.

For e.g. A Sales returns from trade receivable Mr Mypoateacher for $200, the account clerk passes the transaction - Dr Trade receivable - Mr Mypoateacher $200 Cr Sales Returns $200 instead of Dr Sales Returns $200 Cr Trade receivable - Mr Mypoateacher $200. The amount and class are correct just that the account to be debited are credited and account to be credited are debited  - complete opposite of the correct entry. 

💥6. Compensating error 

Compensating error occurs when there are 2 errors made and the 2 errors cancel each other out. 

For e.g.  A trade receivable debit balance was written as $300 whose correct amount should be $500, shortfall of $200 while a trade payable credit balance was written as $1,000 whose correct amount should be $1,200, also a shortfall of $200. The shortfall Debit side of $200 cancel the shortfall of $1,000 henceforth it compensate for each other.

💨How then can the above be translated to helping us answer the questions? That is very easy:- just need to have 3 columns 1. What is the transaction posted? 2. What is the correct entry to be posted & 3. What is the adjusting journal entry?

☝Illustrate the above with the question below :-

The errors for above are :-

• (a) Error of Commission
• (b) Error of Principle
• (c ) Error of Omission 

Hope that the above has allowed you to understand better the 6 types of errors not revealed by the trial balance, in order to do the 3 error columns, you need to know the original entry, correct entry and the adjusting/correcting entry to be able to do that😀

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