Narchson Muthomi

21|05880
Financial Management

Classification Errors:
 Nature of Error: Misclassifying transactions or items in the wrong accounts.
Impact: While this might not immediately affect the overall balance, misclassification can lead to
inaccurate financial statements and misrepresentation of financial performance.
Timing Errors:
Nature of Error: Recording transactions in the wrong accounting period.
Impact: This type of error can affect the accuracy of financial statements for specific periods,
which can mislead stakeholders about the company's performance during a particular timeframe.
Omission Errors:
Nature of Error: Failing to record certain transactions or entries.
Impact: Although the books may balance, omitting transactions can lead to understated revenues,
expenses, or assets, resulting in inaccurate financial statements and misleading financial analysis.
Compensating Errors:
Nature of Error: Making two or more errors that offset each other in terms of value.
Impact: While compensating errors might not immediately impact the overall balance, they can
mask the true financial position of the company. Identifying and correcting one error may reveal
an imbalance.
Estimation Errors:
Nature of Error: Using inaccurate estimates for items like depreciation, allowances, or
provisions.
Impact: While the books may initially balance, using incorrect estimates can lead to distortions
in financial statements, affecting the quality of financial information provided to stakeholders.