Correction of Errors
Trial Balance
TYPES OF ERRORS Casting
Principle
Reversal
Commission
Compensation Omission Original Entry
Transposition
Error of Principle
When transactions are recorded in wrong class of account (Asset, Liability, Capital, Income, Expense.)
(It affects profits)
I.E. $2000 paid for car purchase is recorded as
Dr Repairs $2000
Cr Cash $2000
Car is an asset while repairs is an expense so the result of this would be that that expense would be
higher and asset lower.
Error of Commission
Two types
1) When transactions are recorded in correct class of account but wrong account.
I.E. $2000 paid for car purchases is recorded as
Dr Building $2000
Cr Cash $2000
Car is an asset and building is also an asset so one asset is recorded in another (wrong) asset
account it will not have any effect on PL or SFP only assets in one account will be more than
another
2) When making mistake in totaling books of prime entry.
See in next page the SDB total of 350 has been recorded as 400 which go to GL so means error
will be on both debit and credit side an there will be no error in Personal ledger
Correction of errors Page 1
Invoice issue Document>Books of prime-entry>Books of secondary entry> Financial Statement
Purchase Daybook
Sales Daybook
No Supplier $
Invoice Issued No Customer $
Shams 70
Khalid 100 Invoice Received Tariq 50
Ahmad 200 Shahid 100
Waseem 50
220
400
Dr TR 400 Dr Purchases 220
Cr Sales 400 Cr TP 220
General Ledger
TR Sales Purchases TP
400 400 220 220
Purchase/TP Ledger
Sales/TR Ledger
Shams Tariq
Khalid Ahmad Waseem 70 50
100 50
200
Shahid
100
Correction of errors Page 2
Compensation
When one error conceals the effect of another error.
i.e. Purchase $1750 computer is recorded as
Dr Computer 1750 1750-1570=180
Cr Cash 1570
Another computer is bought for 1700 and is recorded as
Dr Computer 1700
Cr Cash 1880
If you add total debits and credits they will equal
1750+1700=3450
1570+1880=3450
So with the first error TB will not balance but when second error is made it will balance TB so second
error hides the effect of first one.
Transposition
Changing position of numbers
i.e. Purchase $1750 computer is recorded as
Dr Computer 1750
Cr Cash 1570
Omission
Forgetting to record transaction
Two types
1) Complete omission
Forgetting to record transaction at all.
2) Single-entry
Forgetting to record either debit or credit side of transaction
i.e. Purchase $1750 computer is recorded as
Dr Computer 1750
The credit side which is cash has been forgotten to record
Correction of errors Page 3
Original Entry
When mistake made in figures
i.e. Purchase $1750 computer is recorded as
Dr Computer 1750
Cr Cash 1700
This is different from error of transposition because it brings new figure or removes figures
Reversal
As its name suggests it is debiting account that needs crediting and crediting account that needs
debiting.
i.e. Purchase $1750 computer is recorded as
Dr Cash 1750
Cr Computer 1750
The cash should have been credited while computer should have been debited.
Casting(totaling)
Making mistake in totaling
3 types
1) 1 type of error of commission (totaling books of prime entry)
2) Making mistake in totaling the debit and/or credit side of trial balance
Account Name Debit Credit
Cash 98600
Capital 99600
Car 1000
100600 99600
3) Making mistake in totaling credit and/or debit side of account.
Non adjusted 20095 750 Standing order
bacs 3500 750 Direct Debit
500 Bank Charges
21545(credit miscalculated )
Correction of errors Page 4
Error of Trial Balance
Not knowing how to prepare Trial Balance
Account Name Debit Credit
Cash 98600
Capital 99600
Car 1000
100600 99600
Errors the affect Trial Balance (make trial balance imbalance, detected by trial balance)
1) Error of single-entry
2) Error of casting (type 2 (TB) and type 3 (account)
3) Error of Original entry (assumed to happen on one side)
4) Error of Transposition (assumed to happen on one side)
5) Error of Trial Balance
Errors the are in subsidiary ledgers ( TR ledger and TP ledger) do not affect trial balance because trial is
made from General Ledger
The errors that affect trial would make suspense account, to correct the error one entry would go to
the suspense account
Suspense Account
A temporary adjustment account
It has two purposes
1) Prepared when trial balance doesn't balance (used as a jack to balance the two sides of TB
The balance is put on side of trial balance that is less
Account Name Debit Credit
Cash 98600
Capital 100000
Car 1000
Suspense 400
100000 100000
2) Prepared when not sure where to put debit and/or credit side of a transaction.
Put the debit and/or credit temporarily in suspense account then ask expert like 'Zahid'
where to put it
Correction of errors Page 5
Steps in correcting error
3 steps in correcting errors
1st: Think what was needed to be done.
What was correct entry?
Car Purchased for $5000 should be
Dr Car 5000
Cr Cash 5000
These steps are done in mind
2nd: Think what is done.
What is wrong entry?
Dr Cash 5000
Cr Car 5000
3rd: Think what needs to be done.
What is correcting entry? This is the step that is actually recorded
Dr Car 10000
Cr Cash 10000
You will not be expected to know step 1 and 2 but in order to do step 3 correctly knowing step 1 and
2 will help a lot.
If it is said in a question that on debit or credit side something is written wrong that means that
other side is correct otherwise they will tell that both sides have error
If it is said that error is on credit side it means debit is ok
If it is said that error is on debit side it means credit is ok
It is like if I tell you my right arm hurts it means that left is ok otherwise I will say my arms hurt
Correction of errors Page 6
Correction of errors Page 7
Correction of errors Page 8
Dr Suspense 800 Cr DA 400 Cr Dr 400
(B)
3840-2960=880
Discount Allowed
2960
Dr DA 880
Discount Received
Dr DR 880
Cr Suspense 1760 3840
(B)
815602-808420=7182
( D)
(A)
( B)
Correction of errors Page 9
A) Complete omission
B) Principle
C) Commission
D) Transposition
(C)
( B)
Done in NCA chapter
Find NBV that is answer
Analysis = expense= dr = debit less
(B)
10200+3000+1400=14600 ( D )
Add back as not expense
If treated as capital receipt it means we haven't
recorded as income so add the income
3000 it not expense so we add it back and 1400 income so we add it
Correction of errors Page 10
ASSET= LIABILITIES+CAPITAL(CL) OR ASSET-LIABILITIES=CAPITAL=NET ASSET
ASSETS= LIABILITIES+(OPN CAPITAL +PROFIT(INC)-LOSS(EXP)-DRAWINGS+NEW CAPITAL)
-50000+10000=-40000
(B )
Dr TP Dr Sales returns
48*2=96
(D)
( D)
Asset - Liability
85000 - 3000
7000 - 15000
-15000 - 1000
4000 - 2000
2000
83000 21000
83000-21000=62000 (B )
Correction of errors Page 11
Asset - Capital = Liability
33 66 27
120 (160) ?
18 300
(110)
2
73-27=46 ( A) 171 -98 = 73
650000-50000=600000
( B) 150000-50000=100000
Done in accruals and prepayment
Correction of errors Page 12
864390-860930=3460 credit balance on suspense
Dr Cash 333000 Cr Share Capital 330000
Cr Cash 2800 Cr Plant 2800
Dr Petty Cash
Dr Motor 87400 Cr Cash 78400
Dr TR 1200 CR TP 1200
1 will make credit side of TB less
2 two credits will credit side of TB more
(D ) 3 will make debit side of TB less
4 will make credit side less
(A)
Suspense
3000 3460 opening credit
9000 5600
500
2440 closing debit
1) Dr Suspense 3000
Cr Share Capital 3000
2)
87400-78400=9000 more
Dr Plant asset 2800
Dr Repairs 2800 Dr Suspense 9000
Cr Motor 9000
Cr Suspense 5600
3) Dr Petty Cash 500
Cr Suspense 500
Correction of errors Page 13
387642-379511=8131 credit balance on suspense
Will make debit less
Dr Cash 4000 Dr Rent 4000 makes debit side more ( B )
Error of principle
Error is personal ledger
Correction of errors Page 14
Error of principle
Dr Cash Dr disposal
Dr Rent
Dr Purchases Cr Drawings
Dr Drawings Cr purchase/goods
2,3 ( B )
Dr Gas 180 Cr Suspense 180
Suspense
(A)
Dr DA 50 Dr DR 50 Cr Suspense 100 210 180
70 100
Dr Suspense 70 Cr interest income 70
Cr Cash 25000
(C)
Dr Planet 25000
Cr Suspense 25000
Correction of errors Page 15
836200-819700=16500 credit balance
5100 16500
9900 3900
5400
(D)
Correction of errors Page 16
