WHAT ARE ACCOUNTING ERRORS?
- Errors are committed due to negligence or lack of knowledge of the principles of accountancy. They represent the mistakes in the accounts, resulting due to ignorance on the part of those doing the accounting work.
- Detection of errors and prevention of the same is an important objective of an audit. Error is generally taken to be innocent and not intentional.
Types of Errors:
- Error of Principle: These errors are usually committed due to lack of knowledge of principles of book keeping. Errors of principle affect the correctness and reliability of financial statements. Wrong classification of expenses into capital and revenue, treating personal income or expenditure as those of business, providing less or more depreciation, not taking into account all outstanding income or expenditure are a few examples. To prevent such errors, the accounts work should be assigned to a duly qualified person only. He or she must possess good knowledge and experience in the field of dealing with accounts.
- Error of Omission: Here a particular transaction is completely omitted, that is, not at all recorded in the books of accounts. Such errors maybe committed through oversight or even intentionally. The trial balance will tally regardless. Hence, it is difficult to detect them.
- Error of Commission: Here the transaction is recorded but recorded incorrectly in the books of accounts. A certain sum of money received from A may be credited to B’s account. Some such errors may not affect the agreement of the trial balance.
- Error of Duplication: Here the same transaction is written twice. This error will also not affect the agreement of the trial balance. The auditor can detect the error only by carefully conducting the process of vouching and checking the relevant supporting documents.
- Compensating Error: Here, there are two mistakes of the same amount, one on the debit side and the other on the credit side. The total effect of one or more errors on both the sides is the same. Such errors are difficult to detect as the trial balance will tally inspite of such mistakes. Thorough checking of each and every transaction can only detect such errors.
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