Correction of Errors Notes

Accounting Year 10 Chapter 20 – Correction of Errors
Errors not affecting the Trial Balance
Learning Outcomes
At the end of the topic, you should be able to
ü Understand that there are errors that affect and do not affect the Trial Balance
ü Write up the journal entries and/or draw up ledger accounts to correct errors
not revealed by the Trial Balance
ü Understand the following errors: Error of omission, commission, principle,
reversal of entries, original entry and compensating errors
ü Learn that when errors are found, they should be amended by using proper double
entry procedures, via journal, where entries are first recorded before posted to
the appropriate ledger of accounts
When a Trial Balance does not agree it is obvious that a mistake has been done somewhere
and we need to find it in order to have the Trial Balance totals agreeing. However, errors
can also exist even when there is an agreed Trial Balance.
There are errors which do not affect the agreement of the totals of the Trial Balance
and there are errors which affect the agreement of the totals of the Trial Balance.
Errors which do not affect agreement of the totals of the Trial Balance
1. Error of Omission
2. Error of Commission
3. Error of Principle
4. Error of Reversal of Entries
5. Error of Original Entry
6. Compensating Errors
1. Error of Omission
When a transaction is completely omitted from the books. If no entry at all has been
made of a business transaction then it does not affect the figures at all. Both entries of
a transaction are left out.
©Ms Karen-Lee Naudi 2022/2023 Page 1

2. Error of Commission
This type of error occurs when the correct amount is entered but in the wrong account
of the same type.
For example, wrong trade receivable account or wrong trade payable account.
3. Error of Principle
This type of error occurs when an item is entered in the wrong class of account.
For example, when you put Motor Vehicle Repairs into the Motor Vehicles account – an
expense is being treated as an asset.
4. Complete Reversal of Entries
When the entries of a transation are inverted. The debit entry is entered on the credit
side of one account and the credit entry is entered on the debit side of the other account.
For example, Paid wages by Cash is wrongly entered as Dr Cash a/c , Cr Wages a/c.
5. Error of Original Entry
When a wrong but equal number is entered on both sides of the account. For example,
Cash Sales of € 62 was wrongly entered as € 72.
When the numbers are transposed it is called an Error of Transposition. For example,
Cash Sales of € 621 was wrongly entered as € 612.
6. Compensating Errors
Where errors cancel each other out. Errors in numbers, double entry and/or arithmetical
errors (additions or subtractions) cancel each other out. This error includes situations
where transactions are entered twice by mistake.

For example, if the Sales account was added to be €20 too much and the Purchases
account was also added to be €20 too much, then these errors would cancel out in the
trial balance.
Work Out
FW15 Page 400 – 402 Classwork: 25.1 , 25.2 , 25.5
Homework: 25.3A , 25.6A
GFA 4th Ed. Page 69 Q10.1 , Q10.2 , Q10.3
Remember
ü The 6 errors that do not affect the Trial Balance agreement are R.O.C.P.O.C.
Reversal of entries
Omission
Commission
Principle
Original entry
Compensating errors

Errors affecting the Trial Balance

Errors which affect the agreement of the totals of the Trial Balance
There are errors which affect the Trial Balance agreement. Here are some of the most
common.
1. Error of partial commission – when one entry of a transaction is done but the
other entry is omitted.
2. When both entries of a transaction are entered on the same side i.e. there are
two debits or two credits.
3. When different numbers are entered for the same transaction in different
accounts.
4. When there are errors whilst balancing off, such as when the balance b/d is not
equal to the balance c/d, or balance b/d is entered on the wrong side, or
incorrect additions or subtractions.
5. Errors in the drawing up of the Trial Balance, such as incorrect additions or
balances of the accounts are entered on the wrong side.
Work Out
GFA 4th Ed. Page 70 10/4 , 10/5

Errors and the Suspense Account

Learning Outcomes
At the end of the topic, you should be able to
ü Explain why a suspense account may be used

ü Learn to make the necessary entries to set up a suspense account
ü Explain the effects of errors on the profit
ü Learn that some errors may cause the profits originally calculated to have been
incorrect
Suspense accounts
We should try very hard to find errors when the trial balance totals are not equal. When
such errors cannot be found, the trial balance totals can be made to agree with each
other by recording the amount of the difference between the two totals in a suspense
account.
If the errors are not found before the financial statements are prepared, the suspense
account balance will be included in the balance sheet. The balance should be included/
shown just before the figure for net assets, either as a negative amount (if its a credit
balance) or a positive amount (if its a debit balance).
Correction of Errors
When errors are found, they must be corrected using double entry. Each correction must
first be recorded in the journal, and then be posted to the accounts concerned.
What is the effect of errors on profit?
Some of the errors will have meant that the profit reported was wrong. Other errors
will have no effect upon profits.
Ø If an error affects items only in the Statement of Finanical Position, then the
original calculated profit will not need to be changed.

Ø If an error is in one of the figures shown in the Statment of Profit or Loss, then
the original profit will need to be amended.
Work Out
FW15 Page 412 - 418 Classwork:26.1 , 26.2 , 26.4 , 26.5 , 26.6 , 26.8, 26.11,
26.12 , 26.14
Homework: 26.3A, 26.7A, 26.9A, 26.10A, 26.13A
GFA 4th Ed. Page 281 - 283 Q. 26.1 , 26.2 , 26.3 , 26.4 , 26.5 , 26.6 , 26.7
Remember
ü Use the 3 simple steps when correcting errors:

1. We work out the right/correct entry
2. We identify the error
3. We correct the error
ü If an error affects items only in the Statement of Finanical Position, then the
original calculated profit will not need to be changed.
ü If an error is in one of the figures shown in the Statment of Profit or Loss, then
the original profit will need to be amended.
ü When drawing up a statement to correct the net profit,

If the relevant item is Dr in the Journal – Decrease the Net Profit
If the relevant item is Cr in the Journal – Increase the Net Profit

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Accounting Year 10 Chapter 20 – Correction of Errors

Errors not affecting the Trial Balance

At the end of the topic, you should be able to

©Ms Karen-Lee Naudi 2022/2023 Page 1

4. Complete Reversal of Entries

5. Error of Original Entry

©Ms Karen-Lee Naudi 2022/2023 Page 2

FW15 Page 400 – 402 Classwork: 25.1 , 25.2 , 25.5

Homework: 25.3A , 25.6A

GFA 4th Ed. Page 69 Q10.1 , Q10.2 , Q10.3

©Ms Karen-Lee Naudi 2022/2023 Page 3

Errors affecting the Trial Balance

other entry is omitted.

two debits or two credits.

incorrect additions or subtractions.

5. Errors in the drawing up of the Trial Balance, such as incorrect additions or

balances of the accounts are entered on the wrong side.

GFA 4th Ed. Page 70 10/4 , 10/5

©Ms Karen-Lee Naudi 2022/2023 Page 4

Errors and the Suspense Account

At the end of the topic, you should be able to

ü Explain why a suspense account may be used

What is the effect of errors on profit?

©Ms Karen-Lee Naudi 2022/2023 Page 5

ü Use the 3 simple steps when correcting errors:

ü When drawing up a statement to correct the net profit,

©Ms Karen-Lee Naudi 2022/2023 Page 6

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