The journal entry would be:
Error of Principle
Error of principle is like error of commission, just that it is not referring to personal accounts. Thus such an error is when an item is entered into the wrong general ledger account. To cancel such an error one has to cancel the item which is wrong and then re enter the item in its right account and with its right amount.
Example: the purchase of a machine, Lm.18, is debited to purchases account instead of being debited to a machinery account.
The journal entry would be:
Error of Original Entry
It is when an amount is written incorrectly but similar to the original, the wrong amount is put into both entries thus causing a balance. To arrange such an error the same transactions must be done but with the difference in amount.
Example: a sale of Lm 91 to S. Dalli was entered in the books as Lm 19. an entry of another Lm 72 of sales is needed.
Compensating Errors.
Such an error occurs when errors cancel out each other due to by coincidence having the same amounts. When this happens the other part of the transaction should be added.
Example: the sales account is overcast by Lm. 20, as also is the wages account. The trial balance therefore still ‘balances’
Complete Reversal of Entries
The debit is sent to the credit and the credit is sent to the debit but with the right amounts. To correct such an error it is first needed to delete the error made by putting the amount on the opposite side and also making the same transaction on the right side like the previous deletion – thus to make it easier the amount should be doubled and the correction is done once on the opposite side of the error made.
Example: a payment of cash of Lm 21 to R. Micallef was entered on the receipts side of the cash book error and credited to R. Micallef account.
The entries should have been:
But were entered as:
To arrange such an error we have to:
Transposition Error
This is when the amount is totally different form the one listed. This error is on both sides of the debit and credit thus making the trial balance, balance. To arrange such an error the difference of the amount must be placed on the debit and on the credit.
Example: a sale of Lm 221 to J. Ghirlando had been entered in the books, both debit and credit as 212
Errors that do affect the Trial Balance
When errors do affect the trial balance, then this means that the debit side is not equal to the credit side and means that the trial balance does not balance.
There are various types of such errors that are revealed in the trial balance, a few of these are:
Omitting one entry for a transaction
This error is when only the debit or the credit is included thus leaving out half of the entry. A suspense account is created to balance the trial balance. Such an error is corrected by including the left out transaction and to balance the transaction the suspense account is entered with the same amount, thus zeroing the suspense account.
Example: sales Lm. 10 in cash
Dr. Cash account Lm 10 Cr. Sales account Lm 0 - Thus
Dr. Suspense account Lm 10
Corrected by the following
Dr. Suspense account Lm 10 Cr. Sales account Lm 10
Error of incorrect figure in one account
Such an error can occur when the amounts of the debit and credit entries to the accounts do not balance thus creating the trial balance not to balance either. Such an error may be corrected by calculating the difference and putting it in the right side of the transaction and on the opposite side the same amount goes to the suspense account.
Example:
Dr. Cash account Lm100 Cr. Sales account Lm 10
Cr. Suspense account Lm 90
Corrected by the following:
Dr. Suspense account Lm 90 Cr. Sales account Lm 90
Error of debiting two accounts or crediting two accounts for one transaction.
This occurs when in one transaction it is found that it is debited twice or credited twice. To arrange such an error the amount is doubled and the wrong side is deleted and the same amount is sent to the suspense account.
Example:
Dr. Cash account Lm 100
Dr. Sales account Lm 100 – thus Cr. Suspense account Lm 100
Corrected by the following:
Dr. Suspense account Lm 200 Cr. Sales account Lm 200
Errors in balancing the accounts
Such an error occurs when the balancing of the accounts is done wrongly.
Errors in transferring balances to trial balance.
This error is worked like the “error of incorrect figures in one account” this is a slight error just that the error occurs when there is the transfer between the balances to the trial balance. Checking account balances transferred to the trial balance should corrected this error.
Financial Recording By: Kirsten Ann Demicoli
