Page 120 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes 10.4 Errors

There can be certain errors in recording the accounting transactions in primary and secondary
books of accounts. When there are some errors in the accounting then the balance of both the
sides of trail balance will not tally. Some of the errors are easy to detect but there are certain errors
which are not detected through the trial balance. In other words, a trial balance would agree
in spite of these errors. These errors are very difficult to detect because you will not be aware

of such errors. The examples of such errors are errors of principle, errors of omission, errors of
commission, compensating errors, etc.

There are two types of errors:
10.4.1 Errors which cannot be Located by Trial Balance

The following errors cannot be detected by the trial balance means inspite of agreeing the totals
of debit side and credit side, these errors occur in the accounts.
1. Error of Omission: These errors occur when any business transaction is completely or
partially omitted from the recording in the books of original records.

Example: Goods, sold of `10,000 to Mr. Ram, is not entered anywhere in the original
books so its effect will not appear on the ledger and trial balance.
Thus, such type of errors can not be located by trial balance.
2. Error of Commission: Such type of errors are found when one account is debited or credited
in the place of another account.

Example: Cash received from Shyam `1,000 has been credited in the name of Ram.
Such type of errors do not affect the agreement of the totals of the debit and credit side of
the trial balance but they affect the result of the business.
3. Error of Principle: These errors occur when there is wrong classification between the capital

and revenue nature incomes or expenditures.

Example: The purchases of furniture of `20,000, are entered in the book of purchases
while it should be in furniture account.
Such errors can not be located by trial balance.
4. Compensating Error: When two errors of the same account occur and the effect of one error
is compensated by the effect of other error it is called compensating error.

Example: If purchase of `10,000 from Ajay is credited only by `1,000 while the purchases
from Vijay for `1,000 is credited by `10,000. Thus, such type of errors do not affect on the agreement
of the Trial Balance.

10.4.2 Errors which can be Located by Trial Balance

The errors which affects the agreement of the totals of the Trial balance, can be located easily.
These errors may be relating to:

1. Totals of the subsidiary books or ledger accounts.

Example: The total of Purchases Book is written as `44800 while actual total is ` 44300,
the total of Sales Day Book is written as `52500 while it is `52900.

114 LOVELY PROFESSIONAL UNIVERSITY