Accounting errors & Fixes

Accounting errors affecting the trial balance

As mentioned above, errors that throw the trial balance out of balance are relatively easy to find. The following two types of errors are common when the ledger accounts do not balance.

• Error of omission: Leaving out part of a double-entry transaction creates an imbalance in the trial balance. For example, the bookkeeper enters a debit in one account without entering an offsetting credit in another account.
• Error of commission: Recording unmatched values in offsetting credits and debits or entering two credits or debits instead of one credit and an offsetting debit are two types of errors of commission. For instance, the bookkeeper may have entered $421 as a credit but mistyped $412 as the offsetting debit. Or the bookkeeper entered $500 as a credit to one account and then mistakenly entered $500 in the credit column rather than the debit column of another account.

Errors not affecting the trial balance

Errors can occur in the account ledgers that do not throw the trial balance out of balance. These errors can be hard to find and require knowledgeable investigation.

• Omission error: A transaction was simply not recorded in the ledger. The company made a sale, but the sale was not recorded.
• Commission error: Data was recorded in the wrong accounts. The purchase of office supplies was recorded in the account for utilities expenses.
• Principle error: The transaction was recorded improperly. The purchase of an asset was treated as an expense.
• Compensating error: Two separate errors compensate each other. For example, Customer A purchased a product for $1,500 but the bookkeeper recorded only $500 for the sale. Later, the company bought supplies for $2,500 but the bookkeeper recorded only $1,500 for the expense. In both cases, the differences of $1,000 in incoming and outgoing accounts cancel each other out in the trial balance.
• An error of original entry: An incorrect amount was posted to the correct accounts. The bookkeeper incorrectly entered $524 instead of $542 in both the debit and credit accounts.
• Reversal of entries: The right amount was entered in the correct accounts but the debit and credit categories were switched. For example, the cost of goods sold, which includes the cost of buying raw materials, is credited instead of debited, and finished inventory, i.e., the result of turning the raw materials into sellable products, is debited instead of credited.

Correcting Errors of Principle in Accounting

Also called an input error, this error occurs when the real value of the entry is not posted to the correct account. For instance, a $700 purchase of office chairs is debited to the office expense account in place of the purchase account.

To correct this type of error, simply enter offsetting debits and credits to the affected accounts as shown in the illustration below:

Correcting Errors of Omission in Accounting

A financial transaction missed in the company’s accounting records is an error of omission. Two subtypes of this kind of error are common:

• A complete error of omission – the bookkeeper failed to enter the transaction altogether.
• A partial error of omission – the transaction has been recorded only on one side of the ledger. The illustration below shows the partial omission of an accounts receivable account not debited where goods were sold on credit.

To correct a partial error of omission, simply enter the missing half of the transaction:

Correcting Errors of Commission

An error of commission is often called a clerical error. It occurs when an incorrect value is entered in the ledger. For example, the bookkeeper entered a sale of products for $300 instead of the actual value of $3,000.

To correct an error of commission, you must first reverse the incorrect amount and then enter the correct amount. In the illustration below, the first two rows are the error of commission. They are followed in the next two rows by the reversing entries and then the correct entries.