UNIT 3

INTRODUCTION TO CONTROL PROCESSES

CH9:Correction of errors
 ERRORS AND THE TRIAL BALANCE

A difference in the totals of the trial balances

indicate that an error has been made.

However, even if the totals are the same, errors

may still have occurred.
ERRORS AND THE TRIAL BALANCE

• This could be undercasting (lower amount recorded),

overcasting (larger amount recorded), or transposition
(numbers mixed up or reversed).

• With a large number of transactions recorded, errors will

occasionally occur.

• Mistakes should be corrected as soon as possible as the

financial statements as they stand, do not represent the
actual performance of a business
ERRORS AND THE TRIAL BALANCE
• This involves two or more separate errors that have an equal combined effect.
Compensating For example, the sales and purchases accounts are both overstated by $1000.

• An entry is placed in the wrong account. For example, a credit sale of $200 to
Commission Brown is debited to Browning ltd.

• When the entries for a transaction are made in the wrong sides of each account.
Complete reversal For example, a $45 credit sale to Emma is debited to sales and credited to Emma.

Omission • When a record is not recorded at all in the double entry accounts. The same
amounts is missing from the Dr and Cr sides

Original entry • When the entries are in correct sides and correct accounts but incorrect
amounts. For example, $2900 is entered instead of $29.00.

• When a record is made in the wrong type or class of accounts. For example a
Principle business buys computers for their use is recorded as purchases rather than
assets.

Transposition • When the entries are in correct sides and correct accounts but incorrect
amounts(mixed up). For example, $295 is entered instead of $592.
ERRORS NOT AFFECTING TRIAL BALANCE
Error of commission: Transaction entered into the wrong personal account example: J Roberts
instead of G Robertson account.

Compensating: Two or more errors that affect the trial balance by exactly the same
amount.

Original entry: Entry made in the right accounts, in the correct side but the amounts
are incorrect. A cash sale of $580 is made but in cash book is recorded as $850

Error of principle: The correct amounts are entered but they are entered in the
wrong type or class of account. Example: Purchases instead of machines.

Error of omission: A transaction is not entered at all in the accounts.

Complete reversal: Transaction entered in the correct accounts, with the correct
amounts just in the wrong sides of the double entry accounts.

Transposition: transposition error happens when digits are reversed while recording a
number in both accounts
ERRORS AFFECTING TRIAL BALANCE
Making an entry on only one side of the accounts

Incorrect additions in any account

Transposition: Entering a different amount on the debit side from

the amount on the credit side

Errors in writing up the trial balance

Procedure to correcting the error.
1. Enter the correction into the general journal
2. Correct the accounting entries in the double accounts

** The effect of an error is corrected by an adjustment to the accounts and not a

cancelation to the mistake. Errors are never corrected by crossing out the
mistake.
WORKED EXAMPLES
A sale of goods on credit to Yun for $78 is debited to the account of maya by
mistake.

Prepare the entries in the books of the business to correct the error.
WORKED EXAMPLES
General Journal

Commission Error Dr Cr
Yun 78

78
Maya

Maya Yun

Dr Cr Dr Cr
Sales 78 Yun 78 Maya 78
WORKED EXAMPLES
A van was serviced and payment was made by cheque. In error, these motor
expenses of $200 are debited to the motor vehicles account.
Prepare the entries in the books of the business to correct this error.
WORKED EXAMPLES
General Journal

Principle Error Dr Cr
Motor Expenses 200

200
Motor Vehicle

Motor Vehicle Motor Expenses

Dr Cr Dr Cr
Bank 200 Motor Expenses 200 Vehicles 200
WORKED EXAMPLES
A payment of $45 for telephone expenses was made by cheque but not recorded
in the accounts.

Prepare the entry in the general journal for the correction of this error.
WORKED EXAMPLES
General Journal

Omission Error Dr Cr
Telephone Expenses 45

45
Bank

Bank Telephone Expenses

Dr Cr Dr Cr
Telephone Expenses Bank 45
45
WORKED EXAMPLES
Both the sales and purchases accounts were undercast by $150 due to the
incorrect recording of credit transactions.
Prepare the entries in the books of the business to correct this error.
WORKED EXAMPLES
General Journal

Compensating Error Dr Cr
Purchases 150

150
Sales

Sales Purchases

Dr Cr Dr Cr
Customer Y 150 Supplier X 150

NB: If the accounts had been overcast then the adjustments would take place in the
opposite sides.
WORKED EXAMPLES
A business returns goods of $41 to Mariana. The entry was recorded by
incorrectly debiting the purchases returns accounts and crediting the
account of Mariana.

Prepare the entries in the books of the business to correct this error.
WORKED EXAMPLES
General Journal

Complete reversal Dr Cr
Mariana 82

82
Purchase return

Purchase returns Mariana

Dr Cr Dr Cr
Mariana 41 Mariana 82 Purchase returns Purchase returns
82 41
WORKED EXAMPLES
A cash payment of $45 for advertising was entered in both accounts
mistakenly as $54.

Prepare the entries in the books of the business to correct this error.
WORKED EXAMPLES
General Journal
Original entry and transposition
Dr Cr
Cash 9
NB: Depending on the mistake, you need
9
to think whether the account will be Advertising

debited or credited.

Advertising Cash

Dr Cr Dr Cr
Cash 54 Cash 9 Advertising 9 Advertising 9
SUSPENSE ACCOUNT AND THE STATEMENT OF FINANCIAL POSITION
If the errors cannot be found before the financial statements are prepared à the suspense account
balance will be included in the statement of financial position.

If the balance is a credit balance à it should be included under current liabilities on the statement of
financial position.

If the balance is a debit balance à it should be included under current assets on the statement of
financial position.

When errors are found, they must be corrected using double entry. Each correction must be described by an entry in
the journal.

Example: Assume that the error of £40 shown in the example above is found in the following year on 31 March 2023.
The error is that the revenue account was undercast by £40.

The action taken to correct this is:

• debit the suspense account to close it: £40
• credit the revenue account to show where the item should have been: £40.