What are the different types of errors that are usually committed in recording business transaction?
Errors of omission− When an entry gets omitted during recording in the book of original entry or during posting the transaction, then error of omission is committed. There are two types of errors of omission, viz.:
Partial omission− When a transaction is correctly recorded in one side of account but is not recorded in the other side of the account. For example, goods sold to Mahesh recorded in sales but omitted to be recorded in Mahesh’s account. It affects the trial balance.
Complete omission− When a transaction gets completely omitted to be recorded in the books, then it is the case of complete omission . For example, transaction related to purchase of goods from Rakesh is not recorded in the purchases book. Such omissions does not affect the trial balance.
Errors of principle− These refer to those errors that are committed when recording of transactions in the book of the original entry is done against the accounting principle. These errors affect the trial balance.
These errors are committed when proper distinction is not made between revenue income or expenditure and capital income or expenditure. These are of two types:
When revenue transactions are treated as capital transactionsWhen capital transactions are treated as revenue transactions.For example, repairs made to machinery, recorded in machinery account.
Errors of commission− These refer to those errors that are committed when transactions are recorded with wrong amounts, wrong balancing, wrong posting and/or wrong carrying forwarded is done.
These are of two types:
Trial balance does not agree
When trial balance does not agree, then there exist one-sided errors that affect only one account and thereby are easily detectable. These one-sided errors exist due to the following reasons:
Wrong casting of subsidiary bookPosting wrong amount in ledgerPosting on the wrong side of accountWrong balancing of account
Trial balance agrees
When the trial balance agrees, then it should not be taken for granted that there are no errors, as the tallied trial balance just ensures the absence of arithmetical errors.These errors are not easily detectable; as these do not affect the trial balance. These errors arise due to:Recording wrong amount in the original book
Posting amount in the wrong account but in the correct side
Compensating errors− When effects of one error are cancelled by the effects of another error of an equal amount, then compensating errors are committed. For example, Mr. A’s account was credited by Rs 2,000 instead of 200 and Mr. B’s account was credited by Rs 200 instead of 2,000. In this case, the error in Mr. A’s account will be compensated by the error in Mr. B’s account.