Week 3: Errors & Correction of Errors

All errors are corrected by way of ______________.

journal entries, in the General Journal

What are the two sided errors (errors not affecting the balancing of the trial balance)?

1. error of omission

2. error of commission

3. error of principle

4. error of original entry

5. compensating errors

6. error of complete reversal of entries

What is error of omission?

This is where a transaction is completely omitted from or left off the books.

E.g. purchased a motor car on account from Used Wheels Ltd. for $450,000, but made no record of the transaction.

What is error of commission?

This is where the correct amount is entered but in the wrong account of the same class

e.g. sold goods to B. Marks for $23,000 but debited the account of D. Marcs instead

What is error of principle?

This is where a transaction is entered in the wrong class of accounts

e.g. bought a computer for $54,000 for use in the business and debited purchases and credited the bank account.

What is error of original entry?

This is where the figure taken from the source document is incorrect and entered in all accounts affected by the transaction as such.

E.g. sold goods on credit to S. Greaves for $5,640 and entered the amount as $4,640.

What are compensating errors?

These are errors, which cancel or balance each other.

Give two situations for compensating errors?

1. Where an account carrying a debit balance is over- or under-stated by an amount and an account carrying a credit balance is over- or under-stated by the same amount

e.g. Purchases overstated by $2,000 and Sales overstated by $2000.

2. Where both accounts are carrying the same type of balance i.e. Dr or Cr., but one is over-stated by an amount and the other under-stated by the same amount.

E.g. Electricity Expense overstated by $50 and Rent Expense understated by $500.

What is error of complete reversal of entries?

This is where correct amounts are entered but on the wrong side of the accounts i.e. the account(s) to be debited is credited and the account(s) to be credited debited.

E.g. Paid cash of $13,000 to A. Sherman but Dr Cash and Cr. Sherman.

Where is a suspense account used?

where a difference arises after the trial balance is extracted and this difference cannot be immediately located.

Where a suspense account is needed, the account is opened with the balance, which represents _______.

the difference between the two columns of the trial balance.

If the sum of the debit balances is greater than the sum of the credit balances, then the suspense account is opened with _________.

a credit balance

If the sum of the credit balances is greater than the sum of the debit balances, then the suspense account is opened with ___________.

a debit balance

If the accountant is unable to clear the suspense account and the balance remaining is immaterial, this will be reflected in the ___________.

profit and loss account

What are one sided errors (errors affecting the balancing of the trial balance)?

1. posting incorrectly

2. mathematical errors

• suspense account

Name the two types of posting incorreclty.

1. One-Sided Error/Incomplete Double Entry

2. Double-Sided Error

What is the one-sided error/incomplete double entry?

This is where the double entry is not completed

e.g. lodged cash of $42,000 into the current account of the business but only debited the bank account.

What is the double-sided error?

This is where a transaction is posted using only debits or credits

e.g. bought stationery supplies for $12,000 cash and debited both Stationery Supplies and Cash accounts.

Name the two types of mathematical errors.

1. slide error

2. transposition error 

What is the slide error?

One or more zeroes are added to or left off a number

e.g. purchased supplies for $1,000 but debited Supplies $100 and credited Cash $1,000.

What is the transposition error?

This is where the same digits are used but in the wrong order in one account

e.g. paid utilities expense of $2,650 but debited Utility Expense $2,650 and credited Cash $6,250.

Both transposition and slide errors are always divisible by __.

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