Friday, April 18, 2008
In accounting, there will bound to be errors and many errors.In this topic, the lecturer classified errors into two different parts- One that affects the trial balance and one that does not.
The one that does not affect the trial balance is further classified into seven different categories:
1. Errors of Omission (complete omissions): ie. Cash sales for $100 is completely omitted.
2. Errors of Commision: correct amount is involved but in the wrong person account. (ie. K. Green Vs G. Green (confusion in personal a/c)
3. Errors of Principle: confusion bwteen revenue and captial expenditure. (ie. repairs to motor van a/c was put into motor van a/c)
4. Compensating Errors: erros which cancel out each other. ie sales and purchase overcast by $200.
5. Errors of original entry: Original figure was in correct but double entry is observed.
6. Complete reversal: ie. 200 paid to Williams (supplier) which Cr William, Dr Bank.
7. Transposition Error: Wrong sequence of individual chracters which a number was entered. (ie. 142 ->124, 89-> 98)
The other errors will not balance trial balance. They are classified into three categories:
1. In correct additions in any one a/c. (overcast/ under cast)
2. Making an entry on only one side of the a/c meaning one entry or a single entry has taken place.
3. Entering a different amount on debit than the credit. These means keying the a different figure for either debit or credit.
Errors which will not balance trial balance can by corrected using journal entries. Otherwise, a suspense account can be opened which is later cleared by a journal entry.
A suspense account can also be used not only to correct some errors, it can also be opened when an entry does not known where to post the amount. When the mystery is solved, the account will then be close and the correct amount will be posted using a journal entry.
A point to note that suspense account are only temporary accounts. They should not exist when it comes to drawing up a finance statements at the end of the accounting period.
However, based on the ACCA lecture book, they classfied both errors that affect and not affect the trial balance into five different categories:
1. Errors of transposition: Wrong sequence of individual chracters which a number was entered. (ie. 142 ->124, 89-> 98)
2. Errors of Omission: failing to record a transaction at all, or making a debit or credit entry but not the corresponding double entry.
3. Errors of principle: making an double entry in the belief that the transaction is correctly entered but subsequently found out that the entry breaks the 'rules' of accounting principle or concept.
4. Errors of Commission: bookkeeper makes a mistake in carrying out his or her task of recording transactions in the accounts.
5. Compensating Errors are errors which are coincidentally, equal and opposite to one another.
Notice that there is a distinction between the meanings of each errors as stated between the textbook and my lecturer's lessons. There is no hard or fast rules in defining the errors but the concept of correction of errors remain the same and the accounting principle still applied. However, a point ot note is that the distinctions between the meaning of errors as stated between the textbook and my lecturer's lessons will mean different sets of accounting applications. The texbook did not differentiate between the errors that affect and not affect the trial balance, therefore, you need to distinguish that before you introduce a journal entry or a suspense account followed by a journal entry.
Labels: accountancy, accounting, financial accountancy, financial accounting
what we could have been, 9:23 PM.
