Question

Provide two examples of errors that can be made in accounting transactions. In addition, discuss how these errors are "fixed."

Answer 1

Error of omission: In accounting errors of omission arises when a transaction is not at all recorded in the books, either partially or completely. If there is complete omission it does not affect the trial balance, but partial omission would affect the trial balance. To rectify the error, the transaction would be recorded through the General Journal in the similar approach as it would have been recorded in the original manner. For example: A credit note for $500 received from Sam Wholesalers was misplaced and not recorded in the books. After one month the error was discovered thus rectification entry will be:

Dr. Sam Wholesalers $500

Cr. Returns Outwards $500

Error of principle: In accounting errors of principle arises when an entry is recorded in the incorrect account, thus violates fundamental accounting principles. The debit as well as credit side remain affected as the value was correctly recorded but placed incorrectly, thus trial Balance also remains unaffected by such errors. A common fixation would be adding it into the correct account and subtracting out the item's value from the incorrect account. For example: The furniture for $3,000 was bought on credit in the office. In the books the purchase account was debited thus the capital expenditure was treated as revenue expenditure. Thus the rectification entry will be:

Dr. Furniture $3,000

Cr. Purchases $3,000