Types / Classification of Errors | Accountancy

What is Error: 

        Generally error means mistakes. Mistakes made by an accountant while recording business transactions in the books of accounts. Unintentional omission or commission of amounts and accounts while recording the transactions is also known as an Error.

Types / Classification of Errors : 

     Errors may be classified under following four heads

1) Errors of principle

2) Errors of omission

3) Errors of commission

4) Compensating errors   


1) Errors of principle :

      If a transaction is not recorded according to the fundamental principles of  accounting and book keeping.  that types of errors called as an Error of Principle. It may relates to capital and revenue expenditure and Income.


 Example : 

        a) Wages paid for installation of Machinery debited to Wages account

        b) Payment of Salaries to Ramesh debited to Ramesh's Account

2) Errors of omission : 

         The word Omission makes it clear that transaction is omitted at the time of recording in the original book.


Types of errors of omission: 

There are two types of errors of omission.

     a) Complete omission: 
     
                    If record of a transaction totally ignored or omitted to be recorded in the original books of accounts it is known as an Error of Complete omission. It does not affect agreement of trial balance.

  Example:

• Goods of $ 1000 worth purchased from Sam have not been recorded in the book. 

     b) Partial Omission:  

                  If record of a transaction is partly omitted to be recorded in original books or not posted to one account in the ledger this is known as error of partial omission. Error of Partial omission affects the agreement of a trial balance.

   Example:

• Rent Paid $2000 recorded in cash book correctly but remained to be posted to Rent account. No journal entry required only Rent a/c should be debited by $2000.

3) Errors of commission

                 If a Transaction is recorded has been wrongly entered in the book of original entry or wrongly posted in the ledger it is known as error of commission. There are several reasons od errors of commission such as wrong recording, Wrong calculation, wrong amount, wrong posting wrong totaling, wrong balancing etc. This affects the agreement of trial balance.

     Example: 

• Goods Sold to Anna for $5000 was entered in the purchase book
• Paid Insurance $100 posted twice to Insurance Account 

4) Compensating errors   

                 A compensating error is one which is counterbalanced by any other error or errors. When one or more debit errors happens to equal one or more credit errors the error is said to be compensating error.

     Example: 

• Purchase book is under cast by $ 100
• Sales book is under cast by $ 100

         

Effects of Errors:  

       Some errors affect the agreement of the trial balance while some errors do not affect the agreement of the trial balance. Errors affect the financial position of the Business, it affects the net profit or net loss.