Question

Gulf Greetings is a holding company based in Dubai has started its operations in Oman in January 1, 2020. It has 2 branches in Oman – Muscat and Ibra. The bookkeeper of the Ibra branch has caused the following errors in the books of the branch.
i. Purchase of merchandise inventory for OMR 500 cash has not been posted in Cash Account.
ii. Sales Return Account was overcast by OMR 100.
iii. Sales revenue of OMR 12,000 earned is credited to Service Revenue Account.
iv. Wages Expense Account was balanced with OMR 600 short.
v. A balance of OMR 1,800 in Interest Revenue Account is carried forward to next page
as OMR 180.
vi. Prepaid rent of OMR 100 is not recorded.
vii. Purchase of building OMR 100,000 is debited to Repairs and Maintenance Account.
viii. A service revenue of OMR 500 received in advance is recorded as Service Revenue
Account.
ix. OMR 1,234 paid for the rent expenses is recorded with an amount of OMR 1,324.
x. Depreciation expense of OMR 250 on building is recorded twice.
Question – 5:
a. For each of the above errors, you are required to; i. Identify the type of error and
ii. Rectifytheerrors.
b. Will the following errors affect the profitability of a company? Explain.
i. Error of Principle
ii. Error of Commission
iii. Error of Partial Omission

Answer 1

	Type of Error	Rectification	Journal Entry	Debit Amount	Credit Amount
i. Purchase of merchandise inventory for OMR 500 cash has not been posted in Cash Account.	Error of partial ommision	Post the entry in the cash ledger	Purchases Dr to Cash A/C	500	500
ii. Sales Return Account was overcast by OMR 100.	Error of Commission (Casting)	If the error is identifed before transfereing to the Trial Balance, credit the sales return account by - account bing overcast - 100 OMR.(The account being a debit balance account) If the error is identified after transfering to the suspense account, then pass the entry	Suspense Dr   To Sales Return	100	100
iii. Sales revenue of OMR 12,000 earned is credited to Service Revenue Account.	Error of Commission (posting)	Pass the journal entry	Service Revenue Dr To Sales Revenue	12000	12000
iv. Wages Expense Account was balanced with OMR 600 short.	Error of Commission (balancing/totaling)	If the error is identifed before transfereing to the Trial Balance, debit the wages account by - account being balanced short  - 600 OMR.(The account being a debit balance account) If the error is identified after transfering to the suspense account, then pass the entry	Wages Dr To Suspense	600	600
v. A balance of OMR 1,800 in Interest Revenue Account is carried forward to next page as OMR 180.	Error in Commission (Carry Forwarding)	If the error is identifed before transfereing to the Trial Balance, credit the account by - mistake in carry forward  - 1620 ( 1800-180 )  OMR.(The account being a credit balance account) If the error is identified after transfering to the suspense account, then pass the entry	Suspense Dr   To Interest Revenue Account	1620	1620
vi. Prepaid rent of OMR 100 is not recorded.	Error of ommision	Pass the entry	Prepaid Rent Dr To Cash Account	100	100
vii. Purchase of building OMR 100,000 is debited to Repairs and Maintenance Account.	Error of principle	Pass the entry	Building Dr To Repairs & Maintenance	100000	100000
viii. A service revenue of OMR 500 received in advance is recorded as Service Revenue Account.	Error of principle	Pass the entry	Service Revenue Dr To Service Revenue Received in Advance	500	500
ix. OMR 1,234 paid for the rent expenses is recorded with an amount of OMR 1,324.	Error of commission	Pass the entry	Cash A/c Dr To Rent	90	90
x. Depreciation expense of OMR 250 on building is recorded twice.	Error of commission	Pass the entry	Building Dr To Depreciation	250	250

Error of Principle : This is the type of error which resulted due to wrong accounting treatment of the concerned transaction. The applicable accounting policies and accounting standards are violated by such error. Hence such error affects the profitability of the company. For an example, if a capital item is classified as revenue item is recorded in the statement of profit and loss of the company, then this results in profit being understated.

Error of commission : This is the type of error which may arise due to wrong totalling, wrong posting, wrong balancing, This does not affect the profitability of the company, however can result in the trail balance being unbalanced.

Error of partial omission: Errors other error of complete omission is classified as error of partial omission. This will not affect the profitability of the company but will result in trial balance being not balanced. Examples are omission to balance a account, omission to post the entry in an account.