Omission, Original Entry, Reversal, Commission, Principle & Compensating Errors (Cambridge International AS Accounting)

Error of omission

Spec point — errors which do not affect the trial balance: – omission

Error of omission

What is an error of omission?

• An error of omission occurs when a transaction is not entered into any ledger accounts

  • The transaction is omitted
  • It is possible that the transaction was not entered into the books of prime entry

• The transaction is not included in the total for the debits and the total for the credits

  • The totals will therefore balance

How do I correct an error of omission?

• Enter the transaction correctly into the ledger accounts

  • You essentially just need to make the entries as normal

• Make the journal entries

Worked Example Ashika is a sole trader. On 1 March 2024, Ashika identified an error where the sale of goods worth $200 to Kiha was not entered into the ledger accounts.

Prepare journal entries to correct the error. A narrative is required.

Answer:

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: **$
Final answer: 2024 Mar 1	Final answer: Kiha	Final answer: 200
	Sales		Final answer: 200
	Final answer: Correction of error of omission - credit sale to Kiha not recorded

Error of original entry

Spec point — errors which do not affect the trial balance: – original entry

Error of original entry

What is an error of original entry?

• An error of original entry occurs when a transaction is entered into both of the ledger accounts using an incorrect amount

  • The same incorrect amount is entered into both the debit account and the credit account
  • It is possible that the amount of the transaction was entered incorrectly into the books of prime entry

• The incorrect amount is included in the total for the debits and the total for the credits

  • The totals will therefore balance

How do I correct an error of original entry?

• Find the difference between the incorrect amount and the correct amount

• Enter the difference into both accounts

  • To increase an amount

    • Put the difference on the same side as the original entry

  • To decrease an amount

    • Put the difference on the opposite side to the original entry

Worked Example On 1 March 2024, Ashika identified an error where the sale of goods worth $200 to Kiha was entered into the sales journal as $250. Kiha’s account was debited $250, and the sales account was credited $250.

Prepare journal entries to correct the error. A narrative is required.

Answer:

The accounts currently look like:

• Debit Kiha $250
• Credit sales $250

The accounts should look like:

• Debit Kiha $200
• Credit sales $200

Fix the errors

• The amount entered was $50 more than the correct amount

• Decrease both accounts by $50

  • To decrease the accounts, enter $50 on the opposite sides compared to the original entries

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: $
Final answer: 2024 Final answer: Mar 1	Final answer: Sales	Final answer: 50
	Kiha		Final answer: 50
	Final answer:** Correction of error of original entry - credit sale recorded as $250 instead of $200**

Error of reversal

Spec point — errors which do not affect the trial balance: – reversal

Error of reversal

What is an error of reversal?

• An error of reversal occurs when a transaction is entered into the wrong sides of both of the correct ledger accounts

  • The account that was debited should have been credited
  • The account that was credited should have been debited

• The correct amount is included in the total for the debits and the total for the credits

  • The totals will therefore balance

How do I correct an error of reversal?

• Double the value of the transaction

  • This is because you need to apply the transaction twice

    • Once to undo the error
    • Once to make the correct entries

• Make the entries on the correct side

  • This will be the opposite side to where it was entered

Worked Example On 1 March 2024, Ashika identified an error where goods sold to Kiha, for $200, were debited to the sales account and credited to Kiha’s account.

Prepare journal entries to correct the error. A narrative is required.

Answer:

The accounts currently look like:

• Debit sales $200
• Credit Kiha $200

The accounts should look like:

• Debit Kiha $200
• Credit sales $200

Fix the errors

• An amount of $400 on the correct side of both accounts is needed to fix the error

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: **$
Final answer: 2024 Final answer: Mar 1	Final answer: Kiha	Final answer: 400
	Sales		Final answer: 400
	Final answer: Correction of error of reversal - credit sale of $200 entered on the wrong side of the accounts

Error of commission

Spec point — errors which do not affect the trial balance: – commission

Error of commission

What is an error of commission?

• An error of commission occurs when one entry for a transaction is entered into an incorrect account but the type of account is correct

  • A debit entry could have been entered into the wrong expense account
  • A transaction could have been entered into an account for the incorrect customer
  • A transaction could have been entered into an account for the incorrect supplier

• The correct amount is included in the total for the debits and the total for the credits

  • The totals will therefore balance

How do I correct an error of commission?

• Undo the entry in the incorrect account

  • This means making an equal entry on the opposite side of the account

• Make an entry in the correct account

Worked Example On 1 March 2024, Ashika identified an error where goods were sold to Kiha for $200, but the entry was made in Dinah’s account in the sales ledger. The transaction was entered correctly in the sales account.

Prepare journal entries to correct the error. A narrative is required.

Answer:

The accounts currently look like:

• Debit Dinah $200
• Credit sales $200

The accounts should look like:

• Debit Kiha $200
• Credit sales $200

Fix the errors

• Undo the mistake by crediting Dinah’s account
• Debit Kiha’s account

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: **$
Final answer: 2024 Final answer: Mar 1	Final answer: Kiha	Final answer: 200
	Dinah		Final answer: 200
	Final answer: Correction of error of commission - credit sale was debited to Dinah’s account instead of Kiha’s

Error of principle

Spec point — errors which do not affect the trial balance: – principle

Error of principle

What is an error of principle?

• An error of principle occurs when one entry for a transaction is entered into an incorrect account and the type of account is also incorrect

  • A transaction for an expense could have been entered into an asset account

• The correct amount is included in the total for the debits and the total for the credits

  • The totals will therefore balance

Exam Hint It is very easy to confuse an error of principle with an error of commission. An error of commission occurs when an account is confused with another account that has something in common. For example, they are both expenses, or they are both trade receivables.

How do I correct an error of principle?

• You correct an error of principle the same way as you would correct an error of commission

• Undo the entry in the incorrect account

  • This means making an equal entry on the opposite side of the account

• Make an entry in the correct account

Worked Example On 1 March 2024, Ashika identified an error where $50 was paid for petrol, but the entry was made in the vehicles account rather than the vehicle expenses account. The transaction was entered correctly in the cash book.

Prepare journal entries to correct the error. A narrative is required.

Answer:

The accounts currently look like:

• Debit vehicles $50
• Credit cash/bank $50

The accounts should look like:

• Debit vehicle expenses $50
• Credit cash/bank $50

Fix the errors

• The vehicles account has been debited by mistake, as this is an asset account not an expense account

  • Undo the mistake by crediting the vehicles account
  • Debit the vehicle expenses account

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: $
Final answer: 2024 Final answer: Mar 1	Final answer: Vehicle expenses	Final answer: 50
	** Vehicles		Final answer: 50
	Final answer: Correction of error of principle - vehicle expenses were debited to the vehicles account

Compensating errors

Spec point — errors which do not affect the trial balance: – compensating

Compensating errors

What are compensating errors?

• Compensating errors occur when the effects of unrelated errors balance out when totalling the debits and credits

• Example

  • A business sells $100 worth of goods to Steve and $200 worth of goods to Tony

  • The transactions were entered correctly into the sales account

  • Both Steve and Tony’s accounts were debited $150

    • Overall the assets have still increased by $300

How do I correct compensating errors?

• Correct each error separately
• The total of the debits should equal the total of the credits

Worked Example Ashika sold $100 worth of goods to Steve and $200 worth of goods to Tony. On 1 March 2024, Ashika identified that both of these transactions were entered into the sales ledger accounts as $150. The transactions were entered correctly into the sales account.

Prepare journal entries to correct the error. A narrative is required.

Answer:

The accounts currently look like:

• Debit Steve $150
• Debit Tony $150
• Credit sales $300

The accounts should look like:

• Debit Steve $100
• Debit Tony $200
• Credit sales $300

Fix the errors

• Credit $50 to Steve’s account to reduce the balance
• Debit $50 to Tony’s account to increase the balance

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: $
Final answer: 2024 Final answer: Mar 1	Final answer: Tony	Final answer: 50
	Steve		Final answer: 50
	Final answer:** Correction of compensating errors - Tony’s account was understated by $50 and Steve’s account was overstated by $50**