Accounting Errors

1. Errors

2. Introduction
Two types of error can be made by the book-keeper:
1. Errors which do not affect the trial balance totals
2. Errors which do affect the trial balance totals.

3. Tips
When correcting errors, ask three questions:
1. What entries have been made?
2. What entries should have been made?
3. What entries must be made to correct the error?

4. (1) Omission:
No double entry for the transaction was made in the
ledger, e.g. a sale on credit to L Grant for £900 is not
recorded in the ledger.
Correction:
Dr Cr
£ £
L Grant 900
Sales 900
Errors which do affect
the trial balance totals

5. (1) Commission:
An entry is made in the wrong personal account, e.g. a
purchase on credit from L Smith for £1200 is recorded in
the account of P Smith.
Correction:
Dr Cr
£ £
P Smith 1200
L Smith 1200
Errors which do not
affect the trial balance
totals

6. (2) Principle:
A fundamental error when an entry is made in the wrong
account, e.g. the purchase of a motor van, £15,000, is
recorded as a debit to motor expenses.
Correction:
Dr Cr
£ £
Motor vans 15,000
Motor expenses 15,000
Errors which do not
affect the trial balance
totals

7. (3) Compensating:
Errors are made in the ledger which will cancel each
other out, e.g. a business has overcast both the
purchases and sales accounts by the amount of £500.
Correction:
Dr Cr
£ £
Sales account 500
Purchases account 500
Errors which do not
affect the trial balance
totals

8. (4) Original entry:
A transaction is recorded as the incorrect amount in the
journals and posted to the ledger for the incorrect
amount, e.g. a sale on credit to L Patel for £600 is
recorded in the sales journal as £60 and posted to the
ledger.
Correction:
Dr Cr
£ £
L Patel 540
Sales account 540
Errors which do not
affect the trial balance
totals

9. (5) Complete reversal:
When both entries for a transaction are reversed, e.g. a
payment to R Taylor by cheque for £1000 was entered
Debit – bank account – £1000
Credit – R Taylor – £1000
Correction:
Dr Cr
£ £
R Taylor 2000
Bank 2000
Errors which do not
affect the trial balance
totals

10. Errors which do affect
the trial balance totals
Errors can be made which will result in
one side of the trial balance being different
from the other side.
The accounting equation does not hold
true.
A suspense account will be required.

11. The suspense account
If the trial balance does not agree, then a
suspense account should be opened for
the difference. The trial balance will now
be equal.
The errors must be found and corrected
through the suspense account.
The balance on the suspense account
must be cleared.

12. Example
Debits: £50,000 Credits: £49,000
Motor expenses of £1000 have been debited to
the motor expenses, but no credit entry has
been made in the cash book.
Suspense account
Cash book 1000 Bal b/d 1000
1000 1000

13. (2) Single entry:
Only one entry is made in the ledger, e.g. a payment by
cheque for postage stamps for £60 is recorded in the
cash book but no entry is made to postage expenses.
Correction:
Dr Cr
£ £
Postage expenses 60
Suspense account 60
Errors which do affect
the trial balance totals

14. Errors which do affect
the trial balance totals
(3) Overcasting and undercasting of accounts:
John Bridge
Bal b/d 500 Bank 2000
Sales 3000 Bal c/d 2500
3500 3500
Bal b/d 2500
cont’d

15. Continued
The account of John Bridge is over cast by £1000
because the balance brought down should be £1500, not
£2500. The debit side will be over cast by £1000 on the
trial balance.
A journal entry must be made to correct the error
Correction:
Dr Cr
£ £
Suspense account 1000
John Bridge 1000

16. (4) An income transaction could be recorded as an
expense or an expense as an income transaction, e.g.
discount allowed of £500 is posted to the credit of
discount received.
Correction:
Dr Cr
£ £
Discount allowed 500
Discount received 500
Suspense account 1000
Errors which do affect
the trial balance totals