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