Question

What are the different types of errors that are usually committed in recording business transaction

Answer 1

According to the nature of errors committed, errors are classified into the following four categories:

1. Errors of Commission: The errors that are committed because of wrong posting of transactions, wrong balancing of accounts, wrong casting of subsidiary books, wrong totaling or wrong recording of amount in the books are all error of commission.

These errors affect the agreement of the trial balance.

2. Errors of Omission: These errors are of two types and are committed when a transaction is partially or completely omitted to be recorded in the books.

(i) Error of complete omission – When a transaction is completely omitted to be recorded in the books of accounts or to be posted in the respective ledgers, it is an error of complete omission.

Such errors do not affect the agreement of the trial balance.

(ii) Error of partial omission – When a transaction is partially omitted while recording in the books or amounts or partially omitted from posting in the ledger, it is an error of partial omission.

Such errors affect the agreement of the trial balance.

3. Errors of Principle: Accounting transactions are to be recorded following certain principles.

If any of the principle of accounting entries are violated or ignored and the error occurring due to such violation is called error of principle.

4. Compensating errors: When two or more errors are committed in such a way that the net effect of these errors on the debits and credits of accounts is nil, such errors are called compensating errors.