50 Meaning and Types of accounting Errors and procedure for rectifying accounting errors.

Accounting Errors

Accounting errors are those mistakes which occurs in the book keeping or accounting, relating to a routine activity or relating to the principle of accounting. The Accounting errors happens in entering the transactions in journal or subsidiary books or at the time of posting of entries in to the ledger. The accounting errors may happen because of the omission, commission, principle or as a compensating of errors.

Classification of Accounting errors

Accounting errors are classified in to four types on the basis of nature of Errors. They are (1) Errors of Omission, (2) Errors of Commission, (3) Errors of Principles and (4) Compensating Errors.

(1)     Errors of Omission

The Errors of Omission will occur when a transaction is not recorded in the books of accounts or omitted by mistake. The Errors of Omission may happen as partial or complete.

         The partial errors may happen in relation to any subsidiary books. This is the result of when a transaction is entered in the subsidiary book but not posted to the ledger. For example, cash paid to the suppliers has been entered in the payment side of the cash book but it will not be entered in the debit side of the suppliers account.

        The complete omission may happen the transaction is completely omitted from  the books of accounts. For example, an accountant fails to enter a specific invoice from the sales day book.

(2)     Errors of Commission

When a transaction is entered in the books of accounts in wrongly, this may be entered as partially or incorrectly. This kind of errors are known as Errors of Commission. The Errors of Commission may happens because of ignorance or negligence of the accountant. This may be of different types, the main reasons are Errors relating to subsidiary books and Errors relating to ledger.

(3)    Errors of Principles

This  kind of errors are occurs when the entries are made against the principle of accounting. These Errors are made because of the following reasons:-

1.       Errors happens due to the inability to make a distinction between the revenue and capital items.

2.        Errors happens due to the inability to make a difference between the business expenses and personal expenses.

3.       Errors happens because of the inability to make a distinction between the productive expense and nonproductive expenses.

(4)     Compensating Errors

 Compensating Errors are those errors which compensates themselves in the net results of the business. This means, if there are over debit in one account which will be compensated by the over credit in some account in the same extent of the business. Like that, if there is a wrong debit in one account which will be neutralized by some wrong credit in the same extent of the business.

The accounting errors will hardly affect the accuracy of trial balance of the business because the trial balance is the final proof of the books of accounts. There are some of the methods to rectify the accounting errors happened in the books of accounts. The important two methods for rectifying the accounting errors are as follow.

à Striking of the wrong Entry.

à Making appropriate entries to correct the errors.

Procedure for rectifying Accounting errors.

There are mainly three steps to rectify the accounting errors in the books of accounts.

a.       Ascertain the error occurred

b.       Identify the correct record of transaction which has to be done.

c.       Decide the rectification entry.

These all are the different kinds of accounting errors and the methods to rectify those errors.