Classification Of Accounting Errors Part 2

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Accounting Errors can be classified based on two things

  1. Classification on the basis of their nature.

  2. Classification on the basis of their impact on ledger accounts.

Image of classification of accounting errors

Image of Classification of Accounting Errors

Image of classification of accounting errors

1. Classification on the Basis of Their Nature:

  • Error of Omission: Sometimes we forget to record transactions either in the journal or in the ledger. The omission is of two types.

    • Under complete omission, we forget to enter the transaction in journal. Therefore, both debit side and credit side are affected by the same amount. That will not affect the trial balance. But still there exist error.

    • Under partial omission, we forget to pass the entry from journal to ledger. This will affect the trial balance.

      Ex: Credit purchase of Rs.10000 is not recorded in purchases book.

  • Error of Commission: Wrong recording of amounts, wrong totaling of balances etc. come under error of commission. These are of clerical nature and mostly affect the trial balance.

    Entry of Wrong amount – The amount entered is wrong

    Ex: A pays 4000 to B for purchases. Entry is correct in purchase book but the amount wrongly posted in the ledger, as 400.

    Wrong Totaling – The mismatch is because of wrong totaling either in journals or in the ledger accounts. The totaled amounts may be lesser than the actual one (undercasting error) or may be greater than the actual sum (overcasting error).

    Ex: The total of Purchase book is calculated as Rs.54,000 instead of Rs.53,000 (overcasting).

    Wrong carry forward of balances – The debit balance or credit balance in ledgers will be carried forward by mentioning balance c/d. The error is because of carrying wrong amount or carrying the balance to the wrong side.

    Wrong Posting – Error while transferring journal entries to the respective ledger accounts.

    Ex: Goods purchased of Rs.5400 from Rajesh Mohanti was posted to the debit of Rajesh Mohanti or posted twice to his account or posted to the credit of Rakesh Mohanti.

Compensating Errors: Errors committed on debit side (either increase or decrease in amount) may be cancelled out with some other error with the same amount entered on credit side. These errors are not given such importance.

Image of Correction of Errors

Image of Correction of Errors

Image of Correction of Errors

Ex: Sohan’s A/c is debited by Rs 2500 while it was to be debited by Rs 3500 and Sohan’s A/c is debited by Rs 3500 while the same was to be debited by Rs 2500. Thus, excess debit of Mohan’s A/c by Rs.1000 is compensated by short credit of Sohan’s A/c by Rs.1000

Error of Principle: Entries in Journals and ledgers are based on certain principles. The errors resulting due to the violation of these principles is called as Errors of principles.

Ex: Purchase of Machinery entered in Purchase Book. It is wrong because machinery not for the resale. So, the entry should not come under purchase book.

Classification on the Basis of Impact on Ledger Accounts

  • One sided Error: Errors may affect either debit side or credit side. These kinds of errors are called as one-sided errors. Because of this only one account is affected.

    Ex: Sales book is overcast by Rs.1000. In this only Sale A/c is wrong credited.

  • Two Sided Errors: Errors which affect two different accounts i.e. debit side of one account and credit side of the other account.

    Ex: Purchase of Machinery for Rs.50,000 has been entered in Purchase book. In this example, Purchase A/c is wrongly debited and Machinery A/c has been omitted to be debited. Both Machinery A/c and Purchases A/c are affected.

Till now we discussed different kinds of errors and their classification. We need to rectify those errors in order to get accurate accounting reports. Rectification should not be done by erasing or overwriting this may results frauds and manipulation problems. So, rectification should be done as per accounting procedures and principles.

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