The trial balance produced from the accounts appears to be okay/correct, i.e the debits are the same as the credits. However, on taking a close check on the balances and transactions posted, errors may have been made and therefore the balances shown on the trial balance may be incorrect i.e. under/over stated.
There are 6 main types of errors that don’t affect the trial balance and these are explained as follows:
1.Error of omission
Here, a transaction is completely omitted from the accounts and therefore the double entry is not made e.g. a sales invoice of Sh.400 is not posted in the sales journal therefore no entry is made in the debtor’s account and the sales account i.e. both debit of Sh.400 in
debtor’s account and credit of Sh.400 in the sales account. The effect of the error is understates both the debtors and the sales.
To correct this error, the transaction is posted in the books by:
Debiting debtors Sh.400
Crediting sales Sh.400
2.Error of Commission
This error occurs when a transaction is posted to a wrong account but the account is of the same class. Example: a credit sale to T Thompson is posted to L Thompson’s account for an amount of Sh.200. Instead of a debit to T Thompson’s account it is made
to L Thompson’s account and the corresponding credit in the sales account is correct. Although the debit entry is made into the wrong account, the two accounts are of the same class i.e. debtors.
To correct this error a transfer is made from L Thompson’s account to T Thompson by: Sh.
- Debit T Thompson a/c 200
- Credit L Thompson a/c 200
3.Error of principle
In this type of error a transaction is posted not only to the wrong account but also of a different class e.g. Motor vehicle purchased for Sh.400 is posted to the motor vehicle expenses a/c. (Instead of debiting motor vehicles, we debited motor vehicle expenses a/c
and the credit entry in the cashbook is correct) The motor vehicles account is a non-current asset, and motor vehicles expenses a/c is an expense account. Therefore a capital expenditure has been posted as revenue expenditure.
To correct this error a transfer is made from the motor expenses account to the motor vehicles a/c by:
Sh.
- Debit Motor vehicles a/c 400
- Credit Motor expenses a/c 400
4.Complete reversal of entries
A transaction is posted to the correct accounts but to the wrong sides of the accounts i.e. a debit is posted as a credit and a credit is posted as a debit. Example: cash drawn from the bank of Sh.150 for business use is posted as a debit in the bank account and credit in cash in hand.
To correct this error, two entries are made in the relevant accounts:
- Correct the error
- Post the transaction correctly
The entries will therefore be as follows:
- Debit Cash in hand by Sh.150
Credit bank by Sh.150
To correct the error of Sh.150 posted in the wrong sides of these account - Debit cash by Sh.150
Credit bank by Sh.150
To post the entries correctly
5.Error of Original entry
Here a transaction is posted to the correct accounts but the amount posted is not correct i.e. it is either under/over stated. In some cases, this is known as a transposition error e.g. cash received from a debtor of Sh.980 is credited/posted to the customer’s account as
Sh.890. To correct this error, the amount understated or overstated is posted to these accounts to reflect the correct balance. In this case, we will: Sh.
Debit cash book 90
Credit debtors 90
6. Compensating Errors
These are errors that tend to cancel out each other i.e. if the effect of one error is to understate the debits or credits then another error may take place to overstate the debits or credits by the same amount, hence canceling out each other.
