Errors & Journal Entries (Cambridge (CIE) O Level Accounting)
Revision Note
Written by: Dan Finlay
Reviewed by: Lucy Kirkham
Errors Which Do Not Affect a Trial Balance
Which errors do not affect the trial balance?
There may be errors even though the totals in the trial balance are equal
These errors might be spotted by other means
Control accounts
Bank reconciliation statements
These errors cannot be ignored
They could affect the stated profit
They could affect the stated value of assets and liabilities
They could affect the balances related to other businesses
The six types of errors which do not affect a trial balance are:
Error of omission
Error of original entry
Error of complete reversal
Error of commission
Error of principle
Compensating errors
Examiner Tips and Tricks
You need to learn the names and definitions of these six errors!
How do I correct errors using journal entries?
You can correct errors by making the appropriate entries into the ledger accounts
The journal will be used as a book of prime entry
Enter the account that needs to be debited
It is conventional for debit entries to appear first
Enter the account that needs to be credited
It is conventional to indent the details for credit entries
Give a narrative for the journal entry
State “Correction of error”
Give a brief description of the error
Error of Omission
What is an error of omission?
An error of omission occurs when a transaction is not entered into any ledger accounts
The transaction is omitted
It is possible that the transaction was not entered into the books of prime entry
The transaction is not included in the total for the debits and the total for the credits
The totals will therefore balance
How do I correct an error of omission?
Enter the transaction correctly into the ledger accounts
You essentially just need to make the entries as normal
Make the journal entries
Worked Example
Ashika is a sole trader. On 1 March 2024, Ashika identified an error where the sale of goods worth $200 to Kiha was not entered into the ledger accounts.
Prepare journal entries to correct the error. A narrative is required.
Answer
Journal
Date | Details | Debit $ | Credit $ |
2024 |
Kiha |
200 | |
Sales | 200 | ||
Correction of error of omission - credit sale to Kiha not recorded |
Error of Original Entry
What is an error of original entry?
An error of original entry occurs when a transaction is entered into both of the ledger accounts using an incorrect amount
The same incorrect amount is entered into both the debit account and the credit account
It is possible that the amount of the transaction was entered incorrectly into the books of prime entry
The incorrect amount is included in the total for the debits and the total for the credits
The totals will therefore balance
How do I correct an error of original entry?
Find the difference between the incorrect amount and the correct amount
Enter the difference into both accounts
To increase an amount
Put the difference on the same side as the original entry
To decrease an amount
Put the difference on the opposite side to the original entry
Worked Example
On 1 March 2024, Ashika identified an error where the sale of goods worth $200 to Kiha was entered into the sales journal as $250. Kiha’s account was debited $250, and the sales account was credited $250.
Prepare journal entries to correct the error. A narrative is required.
Answer
The amount entered was $50 more than the correct amount
Decrease both accounts by $50
To decrease the accounts, enter $50 on the opposite sides compared to the original entries
Journal
Date | Details | Debit $ | Credit $ |
2024 Mar 1 |
Sales |
50 | |
Kiha | 50 | ||
Correction of error of original entry - credit sale recorded as $250 instead of $200 |
Error of Complete Reversal
What is an error of complete reversal?
An error of complete reversal occurs when a transaction is entered into the wrong sides of both of the correct ledger accounts
The account that was debited should have been credited
The account that was credited should have been debited
The correct amount is included in the total for the debits and the total for the credits
The totals will therefore balance
How do I correct an error of complete reversal?
Double the value of the transaction
This is because you need to apply the transaction twice
Once to undo the error
Once to make the correct entries
Make the entries on the correct side
This will be the opposite side to where it was entered
Worked Example
On 1 March 2024, Ashika identified an error where goods sold to Kiha, for $200, were debited to the sales account and credited to Kiha’s account.
Prepare journal entries to correct the error. A narrative is required.
Answer
An amount of $400 is needed to fix the error
Journal
Date | Details | Debit $ | Credit $ |
2024 Mar 1 |
Kiha |
400 | |
Sales | 400 | ||
Correction of error of complete reversal - credit sale of $200 entered on the wrong side of the accounts |
Error of Commission
What is an error of commission?
An error of commission occurs when one entry for a transaction is entered into an incorrect account but the type of account is correct
A debit entry could have been entered into the wrong expense account
A transaction could have been entered into an account for the incorrect customer
A transaction could have been entered into an account for the incorrect supplier
The correct amount is included in the total for the debits and the total for the credits
The totals will therefore balance
How do I correct an error of commission?
Undo the entry in the incorrect account
This means making an equal entry on the opposite side of the account
Make an entry in the correct account
Worked Example
On 1 March 2024, Ashika identified an error where goods were sold to Kiha for $200, but the entry was made in Dinah’s account in the sales ledger. The transaction was entered correctly in the sales account.
Prepare journal entries to correct the error. A narrative is required.
Answer
Dinah’s account has been debited by mistake
Undo the mistake by crediting Dinah’s account
Debit Kiha’s account
Journal
Date | Details | Debit $ | Credit $ |
2024 Mar 1 |
Kiha |
200 | |
Dinah | 200 | ||
Correction of error of commission - credit sale was debited to Dinah’s account instead of Kiha’s |
Error of Principle
What is an error of principle?
An error of principle occurs when one entry for a transaction is entered into an incorrect account and the type of account is also incorrect
A transaction for an expense could have been entered into an asset account
The correct amount is included in the total for the debits and the total for the credits
The totals will therefore balance
Examiner Tips and Tricks
It is very easy to confuse an error of principle with an error of commission. An error of commission occurs when an account is confused with another account that has something in common. For example, they are both expenses, or they are both trade receivables.
How do I correct an error of principle?
You correct an error of principle the same way as you would correct an error of commission
Undo the entry in the incorrect account
This means making an equal entry on the opposite side of the account
Make an entry in the correct account
Worked Example
On 1 March 2024, Ashika identified an error where $50 was paid for petrol, but the entry was made in the vehicles account rather than the vehicle expenses account. The transaction was entered correctly in the cash book.
Prepare journal entries to correct the error. A narrative is required.
Answer
The vehicles account has been debited by mistake, as this is an asset account not an expense account
Undo the mistake by crediting the vehicles account
Debit the vehicle expenses account
Journal
Date | Details | Debit $ | Credit $ |
2024 Mar 1 |
Vehicle expenses |
50 | |
Vehicles | 50 | ||
Correction of error of principle - vehicle expenses were debited to the vehicles account |
Compensating Errors
What are compensating errors?
Compensating errors occur when the effects of unrelated errors balance out when totalling the debits and credits
Example
A business sells $100 worth of goods to Steve and $200 worth of goods to Tony
The transactions were entered correctly into the sales account
Both Steve and Tony’s accounts were debited $150
Overall the assets have still increased by $300
How do I correct compensating errors?
Correct each error separately
The total of the debits should equal the total of the credits
Worked Example
Ashika sold $100 worth of goods to Steve and $200 worth of goods to Tony. On 1 March 2024, Ashika identified that both of these transactions were entered into the sales ledger accounts as $150. The transactions were entered correctly into the sales account.
Prepare journal entries to correct the error. A narrative is required.
Answer
Steve’s account was debited $150 instead of $100
Therefore, credit $50 to Steve’s account to reduce the balance
Tony’s account was debited $150 instead of $200
Therefore, debit $50 to Tony’s account to increase the balance
Journal
Date | Details | Debit $ | Credit $ |
2024 Mar 1 |
Tony |
50 | |
Steve | 50 | ||
Correction of compensating errors - Tony’s account was understated by $50 and Steve’s account was overstated by $50 |
Worked Example
Ashika prepared a trial balance which balanced. However, she discovered the following errors.
Payment of cash, $600, to Fran, a credit supplier, had been debited to the account of Fred in the purchases ledger.
Rent paid by direct direct, $800, had not been recorded in the ledger accounts.
Office expenses, $150, had been debited to the office equipment account.
Wages paid, $500, had been debited to the bank account and credited to the wages account.
For each of the items, state the type of error that was made.
Answer
Error 1 | Error of commission |
Error 2 | Error of omission |
Error 3 | Error of principle |
Error 4 | Error of complete reversal |
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