Question

explain this errors with example of each on:

1- error of omission

2- error of commission

3- error of principles

4- error of original entry

5- error of reversal entries

6- addition errors

7- posting error

8- trial balance errors

9- compensating errors

Answer 1

1. Errors of Omission:

When a transaction is not recorded by mistake in the books of accounts, it is called an error of omission. ... For example, goods returned by a customer has been entered in the sales returns book but not posted to the credit of customer's account.

2. Error of commission

occurs when an amount is entered right and in the correct account but the value is wrong–i.e. it's subtracted instead of added or vice versa. For example, a payment is applied to the wrong invoice. The amount owing by the client will still be correct in the trial balance, obscuring the mistake.

3. Errors of Principle:

These errors occur when entries are made against the principles of accounting. Example. Purchase of computer for office use is wrongly entered in the Purchases Day Book. Capital expenditure should not be treated as revenue expenditure.

4. Error of original entry:

An error of original entry occurs when an incorrect amount is posted to the correct account. A particular example of an error of original entry is a transposition error where the numbers are not entered in the correct order.

5. Error of reversal

An error of reversal occurs when a transaction that should have been posted as a debit is posted as credit. For example, you may enter an invoice as a payment or refund. You will not notice this error in your trial balance because the trial balance will still be in balance.

6. Propagation of Errors in Addition: Suppose a result x is obtained by addition of two quantities say a and b. i.e. x = a + b. Let Δ a and Δ b are absolute errors in the measurement of a and b and Δ x be the corresponding absolute error in x

7.  Error of Posting Definition:

An error in which amount is posted to the wrong side of the same account is known as error of posting. For Example, goods sold to X wrongly credited to his account.

8. Trial balance errors:

Single sided entry – a debit entry has been made but no corresponding credit entry or vice versa. ... Two debit or two credit entries have been posted. An incorrect addition in any individual account, i.e. miscasting. Opening balance has not been brought down.

9. Compensating errors

In the case of compensating errors, we observe that one of the errors already committed being offset by another error or more than one errors. That means, compensating errors are caused due to the errors committed to compensate each other or offset each other.

For example, the wages expense could be too high by $2,000 due to one error, while the cost of goods sold could be too low by $2,000 due to a compensating error. Or, the revenue account balance could be too low by $5,000, but it is offset by a compensating error in the same amount in the utilities expense account