CORRECTION OF ERRORS  Accruals & Deferrals (Failure to

record adjustments)
 Assets (Debiting a capitalizable
 The presence of error in the recorded
assets as nondepreciable assets or as
accounting data will have an effect in the
an expense)
measurement, determination, and
 Revenues (Crediting revenues as
evaluation of performance and financial
some other forms of accounts with
status of an entity.
credit balance)
 When errors are detected, an accountant
should be able to analyze these errors in
order to know what appropriate action
should be taken under the problem at Types of Errors Affecting Both BS
hand. and IS
 Errors can be discovered during the  Counterbalancing Error
accounting process itself or during the  Non-counterbalancing Eroor
audit process.

CURRENT PERIOD ERRORS
Statement of Financial Position
 Some errors made during the recording
process can only affect balance sheet
accounts.
 When these errors are detected, entries
can simply be made to correct the
account balances. Since they are real
accounts, there are no implications on
accounts that close at the end of an
accounting period.
Notes Receivable debited as Accounts
Payable (Reclassification)
Interest payable credited as salaries
payable (Reclassification)
COUNTERBALANCING ERRORS
Counterbalancing Errors are those which
when not detected within the subsequent
financial year in which the errors are
committed, are automatically corrected as a
natural part of the account process.
A correcting journal entry is necessary for
any counterbalancing error that is detected
before it has counterbalanced.
 Inventories (Overstatement and
Understatement)
 Accruals and Deferrals (Omission or
failure to adjust)
*Cash Basis, off-sets, RE of Year 2 is correct

Statement of Income
 Although reclassification is required,
these kinds of errors do not affect the
amount of profit for the period in
consideration
 Misclassification of items
Interest Revenue erroneously included
as sales revenue
Interest income being credited as
dividend income
 However, if these misclassifications Non-counterbalancing Errors are errors
happened in a previous accounting that are not automatically corrected or offset
period would have to be corrected in the next accounting period.
through item reclassification.
A correcting journal entry is necessary for a
PRIOR PERIOD ERRORS non-counterbalancing error.
 Most errors however, affect both BS and
IS items  Erroneous Capital Expenditures
 Inventory (Overstatement or  Erroneous Revenue Recognition
Understatement)  Omission of Depreciation Chargers