CORRECTION OF ERRORS

 

CORRECTION OF ERRORS.

Learning object:

• Understanding all errors which do not affect trial balance.
• Understanding all errors which affect the trial balance.

ERRORS: Are un intention mistake which made by an accountant/book keeper.

THIS ERRORS OCCURES DUE TO:

1. low knowledge concern accounting such as principle of accounts.
2. working under pressure may cause the errors.

TYPES OF ERRORS

1. Errors which do not affect trial balance.

·         Errors of omission

·         Errors of commission

·         Errors of Principle

·         Errors of original entry

·         Complete reversal

·         Compensating errors

2. Errors which affect trial balance.

ERRORS WHICH DO NOT AFFECT TRIAL BALANCE.

Refer double entry system (every transaction must be posted in two different side of accounts i.e every credited transaction must debited to another accounts).

General a mistake which made in one side of account are recorded into another side of account are results of errors which do not affect trial balance.

TYPES OF ERRORS WHICH DO NOT AFFECT TRIAL BALANCE.

1.   ERROS OF OMISSION: This error occurs when the transaction totally not recorded in the books of account.   

Example- Luu animal food sold mashudu of Tsh 20,000 to juma, this transaction not recorded in their accounts.

(Example show the transaction are recorded in any book of accounts)

2.   ERRORS OF COMMISSION: is the errors which happen when the transaction are proper recorded in the book of accounts but to the wrong personal account.

Example- purchases of furniture Tsh 50,000 from Mohammedi are recorded to mohamedi book.

(example show an accountant post the transaction to Mohamed account instead of Mohammedi account.)

3.   ERRORS OF PRINCIPLE: errors occur when the transaction are recorded in wrong class of accounts.

Example- motor vehicle repair of Tsh 30,000 are recorded to the motor vehicle account.

(motor vehicle repair classified as nominal account/expenses account and motor vehicle account are classified as are real account/Asset therefore an accountant made a mistake).

4.   ERRORS OF ORIGINAL ENTRY/COMPENSATING ERROR: this occurs when there are mistake in recording the figure(amount) in the books of accounts.

Example- cash purchases of sugar Tsh 2,600 was debited into cash accounts with Tsh 1,600 and credited to Sugar accounts with Tsh 1,600.

(instead of records Tsh 2,600 an accountant post Tsh 1,600 in both accounts)

5.   COMPLETE REVERSAL ERRORS: this error happen when the transaction a recorded to the wrong side of account.

Example: salary of Tsh 360,000 paid to Bukuku was credited into Bukuku accounts and debit are salary accounts.

(An accountant records a transaction to the wrong side of accounts because bukuku receive a salary means should debit his account and credit a salary account.)

6.   TRANSPOSITION ERRORS: wrong sequence of transaction amount number a recorded into accounts.

Example: transportation fee of Tsh 21,000 was recorded as 12,000 to books.

(wrong sequence of number a posted into accounts)

TIPS TO UNDERSTAND AND SOLVE THE ERRORS WHICH DO NOT AFFECT TRIAL BALANCE:

The following table shows how an accountant can correct the errors

S/N	TYPE OF ERROR	HOW TO CORRECT
A.	Errors of omission	Record the transaction to the book.
B.	Errors of commission	Write off the wrong account and record transaction to the right accounts.
C.	Errors of principle	Write off the wrong account and record to the right account.
D.	Errors of original entry (compensating errors)	It corrected either by add or subtract the amount
E.	Errors of complete reversal	It corrected by doubling the amount.
F.	Transposition errors	It corrected by add or subtract the amount.

In order to correct the errors easily an accountant must know the following steps:

·         Record the transaction as appear from the question.

·         Know mistake which occurs.

·         Account which are mistaken.

·         Types of errors which an accountant done.

·         Correct the errors.

 

ERRORS WHICH AFFECT TRIAL BALANCE.

Learning object:

• Understand and explain the suspend account.
• Differentiate between the errors which affect and not affect trial balance.

Errors which affect trial balance: occurs when a book-keeper or an accountant make a mistake only in one account.

Double entry principle requires an accountant or book-keeper to record transaction twice i.e every credited transaction must debited into another accounts, therefore when error occurred to one account direct disturb the trial balance see the following example.

Juma purchases sugar of Tsh 2,600 from mmakonde shop, but an accountant records Tsh 2,600 to Juma accounts and Tsh 6,200 to Mmakonde accounts. These records will appear to the Trial balance as follows.

TRIAL BALANCE FOR THE YEAR END …………………………..

Details	Debit	Credit
Juma Account	Tsh 2,600
Mmakonde shop Account		Tsh 6,200
	Tsh 2,600	Tsh 6,200

 

Since the errors occurs in one account, the correction of this errors needs an account known as SUSPENSE ACCOUNT.

SUSPENSE ACCOUNT: This is the temporary accounts which prepared in order to complete the double entry of transaction from the accounts which the errors occurs.

CHARACTERIST OF SUSPENSE ACCOUNTS.

1. Temporary account.
2. Prepared to complete double entry.
3. Has no closing balance.