[Commerce Class Notes] on Types of Errors Pdf for Exam

An accounting error is an error committed in the field of accounting which was made unintentionally. After the detection of the error or the mistake it must be immediately fixed else it will further hamper the financial statements with wrong data. An investigation is conducted if immediate rectification is not assured. 

The accounting errors are not to be mistaken with fraud, as fraud is an intentional act to hide or alter the data in order to do wrong or gain illegal benefit from the firm. There are numerous types of errors, while the most common accounting errors are the clerical ones or the errors of accounting principle.

Types of Errors in Accounting

In the accounting system, there are types of errors in Accounting which is to be classified as:

Subsidiary entries are the transactions which are recorded incorrectly. This type of mistake is detected by a proper bank reconciliation. 

An error of omission occurs when the accountant skips a transaction in the books. He may forget to enter the respective invoice related to the sale transaction made for the sale of a service.

This happens when two digits are reversed or transposed, this error is created in the books. Yet simple error but completely disturbs the accounting system.

Rounding of a figure will make the accounting inaccurate and make a series of errors in future. This mistake is made by the accountant or even by the accounting software.

A transaction that occurred due to incorrect usage of accounting principle is called an error of principle. These errors of principle don’t meet the generally accepted accounting principles abbreviated as GAAP. This type of error is also called an input error because even with the correct figure amount the recording is done in an incorrect account. 

When an entry is debited instead of crediting the entry, or the vice versa results, this is called an error of reversal.

An error of commission occurs when the amount is entered right and also in the correct account but the value accounted for it is wrong–like it is subtracted instead of being added or vice versa.

Types of Errors in Auditing 

The auditors should be very mindful and careful about the detection of the accounting errors as manipulating the accounting may also appear as error or this may be a result of sheer carelessness on the side of the bookkeeper.

Auditing Errors May Be Broadly Classified As Follows

1. Error of Principle

In this type of error, the recording of the items of transactions are not done according to the Principle of Accounting, this is known to be an error of principle. The error of Principle cannot be tracked down or is not traceable, but this continues to exist, the errors are also committed unintentionally or even for the purpose of manipulation of accounts in order to inflate or deflate the profit amount.

2. Errors of Omission

There are two types of errors of omission of entry while recording the transactions in the books of accounts:

• At the time when a transaction is totally omitted from the books of accounts, it will leave the trial balance unaffected and the detection of such error is difficult. 

• Other is the type when the transaction is partially omitted from the books of accounts 

3. Errors of Duplication

An error of duplication is very difficult to detect. This might be detected with proper and acute observation of accounts, for example, the purchase may be recorded twice with the original and duplicate copy of the purchase of invoice, which is possible to post the total of any ledger account twice in the trial balance.

4. Errors of Commission

An error of commission occurs when the entry is made in the books of the original entry or in the ledger account is a wrong way. 

5. Compensating Errors

At times an effect of error compensates with the effect of another error, this is known to be a compensating error, this does not affect the trial balance.