O Level Notes : Accounts - Errors not affecting trial balance
There are errors which do effect the agreement of trial balance. First, Trial balance is not equal and is wrong because of three accounting errors which do effect the agreement of trial balance. Second, The trial balance is equal and wrong because of six accounting errors which do not effect the agreement of trial balance and third, Trial balance is equal and correct.
Three possible scenarios in a trial balance
- Trial balance is not equal and is wrong because of three accounting errors which do effect the agreement of trial balance.
- The trial balance is equal and wrong because of six accounting errors which do not effect the agreement of trial balance
- Trial balance is equal and correct.
Accounting errors not affecting the trial balance
- Error of omission
When a complete transaction is omitted from the book of accounts, this is known as error of omission. For example AB bought machinery from Mr. Daniyal on credit for $4000, this transaction is completely omitted from the books.
Rectifying entry :
Machinery account $4000
Mr.Daniyal”s account $4000
- Error of Commission
When any account is wrongly entered in another account of the same category, it is known as error of commission. There are three types of accounts :
- For debtors & creditors we open personal accounts
- For all tangible items for example fixed assets we open Real Accounts.
- For all the intangible items we open Nominal accounts.
for example goods sold to Mr.Aun for $678 is wrongly entered in Mr.Ali’s account.
Mr.Aun’s account $ 678
Mr.Ali’s account $678
- Error of principle
When any account is wrongly entered in to the account of different classification e.g Bought motor vehicle $4000 is wrongly entered into Motor vehicle expense account .
Motor vehicle account $3000
Motor vehicle expense account $3000
- Compensating error
When two errors by the same amount cancel out each other, this is termed as compensating errors. For example purchases are overcast by $500 and wages are under cast by $500.
Wages account $500
Purchases account $500
- Error of original entry
When any amount is wrongly entered from the source documents to the books pf prime entry. For example goods sold to Mr.Aun $221 are entered in books as $212.
Mr.Aun’s account $9
Sales account $9
- Error of reversal entry
When any transaction is recorded in the books exactly in the reverse order, one which is to be debited is credited and the one which is to be credited is debited. For example cash drawn from bank $100 is debited to bank account and credited in cash account.
Cash account $200
Bank account $200
*note that we double the amounts when rectifying reversal errors.