Types of Errors (Cambridge International AS Accounting)

Errors which affect the trial balance

Spec point — errors which affect the trial balance

Which errors affect the trial balance?

• There are some errors that are identified by the trial balance

• The most common reasons for these types of errors are:

  • Addition errors
  • Posting errors
  • Unequal posting errors
  • Partial omission errors

• A suspense account needs to be created to fix these errors

Which are addition errors?

• Addition errors occur when:

  • A calculation error is made when balancing an account
  • A numerical error is made when totalling the debits or credits in the trial balance

• Example

  • A business has two entries in the drawings account: $550 and $450
  • The business incorrectly totals this account as $910

Which are posting errors?

• Posting errors occur when both entries of a transaction are made on the same side of the accounts

  • Both are entered as debits or both are entered as credits

• Example

  • A business pays $500 for rent

  • The rent account is debited $500

  • The bank account is debited $500

    • This should be a credit entry

Which are unequal posting errors?

• Unequal posting errors occur when a transaction is entered into two accounts using different amounts

• Transposition errors are common examples of unequal posting

  • This is where the digits are entered in the wrong order

• Example

  • A business makes a credit sale of $52

  • $52 is entered into the sales account

  • $25 is entered into the trade receivables account

    • The digits have been switched around

Which are partial omission errors?

• Partial omission errors occur when a transaction is only entered once into the ledger accounts

  • The debit or credit entry is missing

• Example

  • A business takes $200 worth of goods for personal use
  • They debit the drawings account
  • But they forget to credit the purchases account

Errors which do not affect a trial balance

Spec point — errors which do not affect the trial balance: – omission – commission – principle – original entry – reversal – compensating

Errors which do not affect a trial balance

Which errors do not affect the trial balance?

• There may be errors even though the totals in the trial balance are equal

• These errors might be spotted by other means

  • Control accounts
  • Bank reconciliation statements

• These errors cannot be ignored

  • They could affect the stated profit
  • They could affect the stated value of assets and liabilities
  • They could affect the balances related to other businesses

• The six types of errors which do not affect a trial balance are:

  • Error of omission
  • Error of original entry
  • Error of complete reversal
  • Error of commission
  • Error of principle
  • Compensating errors

Exam Hint You need to learn the names and definitions of these six errors! A lot of students get errors of commission and errors of principle mixed up.

Worked Example Ashika prepared a trial balance which balanced. However, she discovered the following errors.

1. Payment of cash, $600, to Fran, a credit supplier, had been debited to the account of Fred in the purchases ledger.
2. Rent paid by direct direct, $800, had not been recorded in the ledger accounts.
3. Office expenses, $150, had been debited to the office equipment account.
4. Wages paid, $500, had been debited to the bank account and credited to the wages account.

For each of the items, state the type of error that was made.

Answer:

1. The debit entry was made in a supplier's account but it was the incorrect supplier
2. The transaction has not been entered into the accounts
3. The debit entry was made into an asset account instead of an expense account
4. The transaction has been entered on the incorrect sides of the correct accounts

Final answer: Error 1	Final answer: Error of commission
Final answer: Error 2	Final answer: Error of omission
Final answer: Error 3	Final answer: Error of principle
Final answer: Error 4	Final answer: Error of complete reversal