Error Rectification in accounting - Explanation with examples

Error Rectification in Accounting:-

Type of Errors: -

1. Errors of Omission
2. Errors of Commission
3. Principle Errors
4. Compensating Errors

1. Errors of Omission:-

• Completely omitted: - Those transactions which are completely omitted to record in the books of original entry and thus cannot be posted in the ledger account. These types of errors do not affect the agreement of trial balance. For example, goods purchased from Mr A on credit but not recorded in the purchase book. So, it will also not be posted into the ledger account and not shown in the trial balance whole.
• Partial Omitted:- Those transactions which are recorded partial in the books of accounts are known as an error of partial omission. In other words, every transaction involves a minimum of two accounts, So, if an accountant fails to post the transaction into the one ledger account and posts it in another one account this is known as an error of partial omission. These types of errors do affect the agreement of trial balance. Example: - Goods sold to Mr B posted in the sales account but not posted in Mr B's account then the wrong balance of Mr B's account will be transferred to the trial balance.

2. Errors of Commission: -

• Recording Error: - When an accountant records a transaction with the wrong amount in the original entry book. For Example - The salary was paid to the Employee for Rs 10,000/-, But recorded in the cash account and Salary account for Rs 1000/- These types of did not affect the agreement of trial balance.
• Ledger Balancing Error: - These types of errors arise due to the wrong balancing of some ledger accounts. These types of errors affect the agreement of trial balance. For Example - The balance of the furniture and fixture account was taken more than Rs 1000/-, So due to this error the debit side of the trial balance will also be in excess by Rs 1,000/-.
• Posting Error: - These errors arise when the correct transaction is recorded in the original entry book but wrongly posting the ledger account. It may be divided into the following type
  1. Posted with the incorrect amount on the correct side of the ledger,
  2. Posted with the correct amount on the incorrect side of the ledger.
  3. The incorrect amount was posted in the incorrect ledger account but on the correct side.
  4. The correct amount was posted in the incorrect ledger.
  5. Posting twice in the ledger account.
• An error of Carrying forward the wrong balance: - This error occurs when an accountant carries forward the wrong balance of the ledger account into the next year or in the trial balance. These types of errors will affect the agreement of the trial balance.

3. Principle Errors: -

1. Treating Capital items as the revenue item
2. Treating Revenue item as a capital item.

4. Compensating Error: -

Error Rectification: -

1. An error that did not affect the agreement (totalling) of the trial balance.
2. An error that affects the agreement (totalling) of the trial balance.