Question

In: Accounting

The fact that your trial balance agree does not mean that there are no errors. Discuss...

The fact that your trial balance agree does not mean that there are no errors. Discuss
12 marks

Solutions

Expert Solution

Accounting Errors are mistake done in bookkeeping. These are unintentional mistake are not done with the intention of fraud. Generaraly few errors can be identified easily by preparing trail balance but some error has no effect on trail balance i.e. the trial balance will agree even though there are errors present.

Types of Errors which have no effect on trial balance are

1) Complete omission of entries, If an entire entry is omitted from being enter then trail balance will agree.

2) Error of principle, Errors that involve violation of accounting principles, misinterpretation of facts, unintentional unrealistic estimates or incorrect method of calculation. These errors are usually caused due to insufficient accounting knowledge. It has no effect on the closing balance.

3) Error of commission, It is an error which occur when a transaction is entered in the books of accounts wrongly. It may be entered partially or incorrectly. Such error is called an error of commission.

(i) Entering the wrong amount in a subsidiary book,

(ii) Entering the transaction in a wrong subsidiary book,

If an error is due recording incorrectly due to above items trail balance will agree.

4) Compensating Errors, These are the errors, which compensate themselves in the net results, i.e. over the debit of one account is neutralized by an over credit in some other account to the same extent. Similarly, a wrong credit might have been compensated by some wrong debit in some other account.

The above Errors may exist in the accounts but are harder to find mere preparation of trial balance will not detect these error a detailed examination of all records is required as trail balance will still agree.

Please like the answer.................................. for doubts please comment....................thank you


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