ERRORS NOT AFFECTING THE TRIAL BALANCE

1
ERRORS NOT AFFECTING THE TRIAL BALANCE

• As we have previously seen a Trial balance should
  always balance if a debit entry and a credit
  entry has been made to record a transaction.
• HOWEVER NOT ALL ERRORS CAN BE IDENTIFIED IF THE
  TRIAL BALANCE DOES IN FACT BALANCE!

2
COMPLETE REVERSAL OF ENTRIES

• We have studied this before, but if double
  entries are completely reversed, i.e. we debit an
  account which should be credited, and credit an
  account which should be debited, then the trial
  balance will still balance, even though the
  transaction has been recorded, completely
  incorrectly.

3
ERRORS OF OMISSION

• Where a transaction is completely omitted from
  the accounting records, the trial balance will
  still balance, provided that all of the other
  transactions have been recorded by a debit and
  credit entry.
• Note, it will still balance if the entries for
  the other transactions have been completely
  reversed.

4
ERRORS OF COMMISSION

• This type of error occurs when the correct amount
  is entered, but in the wrong persons account.
• For example, a credit sale of 11 to C. Green is
  correctly recorded in the Sales Day Book, but is
  debited to K. Greens personal account in the
  Sales Ledger.
• The records will show that a credit sale of 11
  has been made, but would incorrectly indicate
  that K. Green owes the business (a debtor) 11,
  when in fact C. Green owes the business (a
  debtor) 11.

5
ERRORS OF PRINCIPLE

• This is where an item is entered in the wrong
  class (type of account), although a double entry,
  i.e. debit entry and credit entry has been made,
  even if the double entry has been completely
  reversed.
• For example, if a florist purchases a delivery
  van (fixed asset) by cheque, but debits the motor
  expenses account (whilst crediting the bank
  account) which, when preparing the financial
  statements, is treated as an expense in the
  profit and loss account, the trial balance will
  balance (a debit and a credit entry has been
  made), but the profit of the business will be
  understated when the financial statements are
  prepared.

6
COMPENSATING ERRORS

• This occurs when errors effectively cancel each
  other out.
• For example, if the sales account was added up to
  be 10 more than it actually is, whilst at the
  same time, the purchases account was also added
  up to be 10 more than it actually is, then these
  two errors would cancel out (compensate) when the
  trial balance is prepared.
• This is because both the debit side and the
  credit side of the trial balance will be 10 too
  much.

7
REVIEW QUESTION

• If the Sales Day Book and the Purchases Day book,
  were both added up to be 10 more than the
  correct figure, and all other entries, i.e. to
  the personal accounts been made correctly, would
  the trial balance still balance?
• This is one of the reasons why we prepare control
  accounts, which we will study next.

8
CASTING

• The term casting means adding up.
• Overcasting as in this example, means adding up a
  column of figures to give an answer which is
  greater than it should be.
• Undercasting means incorrectly adding up a column
  of figures to give an answer which is less than
  it should be.

9
ERRORS OF ORIGINAL ENTRY

• This occurs when the original figure recorded is
  incorrect.
• For example, a credit sale of 150, may have been
  recorded in the Sales Day Book as a credit sale
  of 130, and the correct double entry made (using
  the recorded amount) in the personal account of
  the debtor in the Sales Ledger.
• The result of this would be that sales in the
  profit and loss account would be understated by
  20, and debtors, as per the Sales Ledger would
  also be understated by 20.
• HOWEVER, THE TRIAL BALANCE WOULD STILL BALANCE.

10
TRANSPOSITION ERRORS

• This occurs where the wrong sequence of the
  individual characters within a number is entered.
• For example, in the Sales Day Book a credit sale
  of 142 is recorded as 124.
• If the double entry (even if completely reversed)
  is made, the trial balance will still balance.
• This is quite a common problem and it is
  difficult to detect if the error has occurred in
  both the debit and the credit entries.
• However, it is more common for this type of error
  to occur on only one side (debit or credit) of
  the double entry.

11
CORRECTION OF ERRORS

• Most errors are eventually discovered.
• However, when they are discovered, we should NOT
  correct them by crossing out figures, tearing out
  accounts or using chemicals to remove the error.
• Corrections to double entry accounts should be
  made via the journal, in order that there remains
  a permanent record of the actual mistake and how
  it was corrected.

12
CORRECTION OF ERRORS

• We should
• SHOW THE CORRECTIONS BY MEANS OF JOURNAL ENTRIES.
• SHOW THE CORRECTIONS IN THE DOUBLE ENTRY SET OF
  ACCOUNTS, BY POSTING THESE JOURNAL ENTRIES TO THE
  LEDGERS AFFECTED.

13
CORRECTION OF ERRORS

• On pages 379 to 382, examples are given of
  journal corrections.
• You should study these as private study.
• You will be required to use journal corrections
  in Seminar questions.