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Errors Not Affecting Trial Balance

The main aim in preparing a trial balance is to ensure that the total of the debit column equals the total of the credit column. Even when the totals of the two columns balance, there is no guarantee that the trial balance is free from errors. There are certain errors that the trial balance does not disclose. In this regard, it cannot be said that the trial balance is a confirmation of the accuracy of the accounts.

Once errors are discovered, their corrections are made by journalized entries for the necessary account postings to be carried out.

The following are errors that do not affect the equality of the totals in the trial balance.

1. Error of omission

A transaction is completely left out of the books of accounts. Neither a debit entry is made to the appropriate account nor a credit entry made to the corresponding account. As both the debit and credit sides have equal amounts and are not recorded, the trial balance is not affected even when its totals are equal.

For example, a cheque worth $120 paid to Jolly John, a trade creditor was completely omitted from the books of accounts. This is corrected by passing the journal entries as shown here:

Journal entry

Date Accounts Folio Debit Credit
$ $
20XX
May 31 Jolly John 120
Bank 120
(Correction of omission)


2. Error of commission

An entry debited or credited correctly with the correct amount but to the wrong account. Here, it’s obvious that it does not affect the trial balance in any way since the entry is made in the correct side but of the wrong account

For example, credit sale of goods for $450 to J Johnny was debited wrongly in J John’s account in the sales ledger. To correct this, the amount must be removed from J John’s account and entered in J Johnny’s account. The required journal entries to correct it are as follow:

Journal entry

Date Accounts Folio Debit Credit
$ $
20XX
Jun 30 J Johnny 450
J John 450
(Correcting wrong account posting)


3. Error of principle

An error of principle violates the principle of accounts. This error is made when there’s a failure to distinguish between capital expenditure and that which is revenue expenditure. To illustrate, when a motor vehicle is bought it is capital expenditure. Spending on petrol for the use of the vehicle is revenue expenditure. Expenditure on petrol does not increase the value of the vehicle and so is classified as revenue expenditure.

For example, $150 spent on the delivery and installation of a machine is debited to general expenses account. This is wrong posting because the delivery and installation costs incurred are necessary to get the machine operational, and should be treated as capital expenditure. Posting to general expenses is to regard the costs as revenue expenditure. The correction to be done here is to transfer the delivery and installation amount from the expense account to the fixed asset account.

Journal entry

Date Accounts Folio Debit Credit
$ $
20XX
Jul 31 Machinery 150
General expenses 150
(Correcting wrongly posted expenditure)


4. Compensating error

Compensating errors are about one error counteracting another. Such errors rarely happen as the two errors have to be of equal amounts with one on the debit side and the other on the credit side. As both errors involve the same amount and cancel each other out, they do not affect the trial balance whose totals can still balance. Compensating errors can be more than two and can still cancel each other out.

For example, discounts allowed and discounts received are each overstated by $50. These are corrected by reducing the accounts by this amount through journal entries.

Journal entry

Date Accounts Folio Debit Credit
$ $
20XX
Aug 31 Discounts received
50
Discounts allowed
50
(Correcting overstated amounts)


5. Error of original entry

An amount different from the original amount is entered in the debit and credit sides of the accounts. As the two sides are recorded with the same wrong amount, the error does not affect the balance of the totals in the trial balance. Such an error occurs when the amount is copied wrongly from a source document such as an invoice, or the error is made when recording the amount into the books of accounts.

For example, $123 of returned goods is entered as $132 in both H Hairy’s and returns inwards accounts. The difference of $9 is journalized as follow:

Journal entry

Date Accounts Folio Debit Credit
$ $
20XX
Sep 30 H Hairy
9
Returns inwards
9
(Correcting $123 posted as $132)


6. Complete reversal of entries

This happens when the correct amounts are posted to the wrong sides of the accounts. Instead of correctly debiting an amount to an account, the amount is credited to the account, and vice versa. As the amounts wrongly posted on opposite sides of the accounts are the same, the trial balance is not affected as it can still balance.

For example, $175 cash was received from H Hothead and was entered in the credit side of cash book and debited to H Hothead’s account in the sales ledger. Here, the correction is done by posting on the opposite side of each account an amount that doubles the wrongly posted amount. The correcting journal entries are:

Journal entry

Date Accounts Folio Debit Credit
$ $
20XX
Oct 31 Cash
350
H Hothead
350
(Cash receipt wrongly posted on
credit side, now corrected )



Last Updated (Friday, 03 September 2010 19:57)