Accounting Errors

Errors are the mistakes, which are committed either in journalizing or posting. They are inevitable in accounting process. These mistakes are committed by the accounting personnel either due to lack of the knowledge of Generally Accepted Accounting Principles (GAAP) or carelessness in recording and posting the financial transaction. Hence, accounting errors means the errors and mistakes which are committed in recording or posting the transactions due to carelessness, lack of accounting knowledge or bad intention of the staffs.

Types of errors

On the basis of disclosure by trial balance, accounting errors are of following types:

• Errors disclosed by trial balance
• Errors not disclosed by trial balance

The figure shown below shows all types of accounting errors based on disclosure by the trial balance:

Errors disclosed by Trial Balance

The errors, which affect the agreement of the trial balance, are called the errors disclosed by the trial balance. The following errors can be disclosed by the trial balance: -

1. Omitting to post in an account If the amount of the transaction is omitted to post in one account, while posting a transaction from a subsidiary book to the ledger then it affects the agreement of the trial balance.
   
   
2. Posting wrong amount in an account
   If the amount of a transaction is posted in one account wrongly, it affects the agreement of the trial balance.
   
   
3. Posting of amount in a wrong side of an account
   If the amount of a transaction is posted on the wrong side of an account, it makes trial balance unequal. The wrong side posting affects the trial balance twice.
   
   
4. Obtaining wrong total of a subsidiary book
   If the total of the subsidiary book is obtained wrongly, it is disclosed by the trial balance. For example, if the total of the sales book is obtained wrongly as Rs. 6,000 instead of Rs. 3,000, it makes credit total of the trial balance heavier by Rs. 3,000.
   
   
5. Obtaining wrong balance of an account
   If the balance of an account is obtained wrongly, it affects the agreement of the trial balance.
   
   
6. Bringing down a balance wrongly
   If the balance of an account is brought down wrongly, it affects the agreement of the trial balance. The accounting clerk may replace the balance of an account on the wrong side or with the wrong amount or omit to bring down the balance at all which make the trial balance disagreement.
   
   
7. Committing errors in the trial balance
   The following errors, if committed in the trial balance itself, are disclosed by it:
   • Omitting to include a balance of an account in the trial balance
   • Entering the balance of an account in the wrong side or with the wrong amount in the trial balance
   • Obtaining wrong total of the trial balance

Errors not disclosed by Trial Balance

The agreement of the trial balance is not the complete evidence that the book of accounts is free from all accounting errors. It is because the trial balance cannot disclose all types of accounting errors. It means that there are certain types of errors that do not affect the agreement of the trial balance.

The following errors cannot be disclosed by the trial balance: -

1. Errors of complete omission
   It occurs due to non-recording a transaction at all in the concerned primary book. These errors also occur due to omitting to post both accounts of a transaction in the ledger.
   
   
2. Errors of commission

   

   
   It occurs due to wrong recording or posting of a transaction. These errors occur due to the following reasons: -
   • If a transaction is recorded in the primary book including wrong account
   • If a transaction is posted in wrong account
     
     
3. Errors of principles
   It occurs due to wrong application of the Generally Accepted Accounting Principles (GAAP). The accounting personnel who are lacking the knowledge of principles and practices of accounting may record the transactions against these principles.
   
   
4. Errors of duplication
   It occurs due to the recording of the transaction twice or more in the primary book. These errors also occur due to posting both aspects of the transactions against these principles.
   
   
5. Compensating errors

   

   
   The errors which are compensated by committing other errors in the books of accounts are called compensating errors. Thus, two or more errors, which mutually compensate the effect of one another is called compensating errors.