Errors
© Hodder Education 2008
Introduction
Two types of error can be made by the
book-keeper:
1. Errors which do not affect the trial
balance totals
2. Errors which do affect the trial balance
totals.
© Hodder Education 2008
Examiner’s tip
When correcting errors, ask three
questions:
1. What entries have been made?
2. What entries should have been made?
3. What entries must be made to correct
the error?
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Errors which do affect
the trial balance totals
(1) Omission:
No double entry for the transaction was made in the
ledger, e.g. a sale on credit to L Grant for £900 is not
recorded in the ledger.
Correction:
L Grant
Sales
Dr
£
900
Cr
£
900
© Hodder Education 2008
Errors which do not
affect the trial balance
totals
(1) Commission:
An entry is made in the wrong personal account, e.g. a
purchase on credit from L Smith for £1200 is recorded in
the account of P Smith.
Correction:
P Smith
L Smith
Dr
£
1200
Cr
£
1200
© Hodder Education 2008
Errors which do not
affect the trial balance
totals
(2) Principle:
A fundamental error when an entry is made in the wrong
account, e.g. the purchase of a motor van, £15,000, is
recorded as a debit to motor expenses.
Correction:
Motor vans
Motor expenses
Dr
£
15,000
Cr
£
15,000
© Hodder Education 2008
Errors which do not
affect the trial balance
totals
(3) Compensating:
Errors are made in the ledger which will cancel each
other out, e.g. a business has overcast both the
purchases and sales accounts by the amount of £500.
Correction:
Sales account
Purchases account
Dr
£
500
Cr
£
500
© Hodder Education 2008
Errors which do not
affect the trial balance
totals
(4) Original entry:
A transaction is recorded as the incorrect amount in the
journals and posted to the ledger for the incorrect
amount, e.g. a sale on credit to L Patel for £600 is
recorded in the sales journal as £60 and posted to the
ledger.
Correction:
Dr
Cr
£
£
L Patel
540
Sales account
540
© Hodder Education 2008
Errors which do not
affect the trial balance
totals
(5) Complete reversal:
When both entries for a transaction are reversed, e.g. a
payment to R Taylor by cheque for £1000 was entered
Debit – bank account – £1000
Credit – R Taylor – £1000
Correction:
R Taylor
Bank
Dr
£
2000
Cr
£
2000
© Hodder Education 2008
Errors which do affect
the trial balance totals
Errors can be made which will result in
one side of the trial balance being different
from the other side.
The accounting equation does not hold
true.
A suspense account will be required.
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The suspense account
If the trial balance does not agree, then a
suspense account should be opened for
the difference. The trial balance will now
be equal.
The errors must be found and corrected
through the suspense account.
The balance on the suspense account
must be cleared.
© Hodder Education 2008
Example
Debits: £50,000 Credits: £49,000
Motor expenses of £1000 have been debited to
the motor expenses, but no credit entry has
been made in the cash book.
Suspense account
Cash book
1000
Bal b/d
1000
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1000
1000
Errors which do affect
the trial balance totals
(2) Single entry:
Only one entry is made in the ledger, e.g. a payment by
cheque for postage stamps for £60 is recorded in the
cash book but no entry is made to postage expenses.
Correction:
Postage expenses
Suspense account
Dr
£
60
Cr
£
60
© Hodder Education 2008
Errors which do affect
the trial balance totals
(3) Overcasting and undercasting of accounts:
John Bridge
Bal b/d
500
Bank
2000
Sales
3000
Bal c/d
2500
3500
Bal b/d
3500
2500
cont’d
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cont’d
The account of John Bridge is over cast by £1000
because the balance brought down should be £1500, not
£2500. The debit side will be over cast by £1000 on the
trial balance.
A journal entry must be made to correct the error
Correction:
Suspense account
John Bridge
Dr
£
1000
Cr
£
1000
© Hodder Education 2008
Errors which do affect
the trial balance totals
(4) An income transaction could be recorded as an
expense or an expense as an income transaction, e.g.
discount allowed of £500 is posted to the credit of
discount received.
Correction:
Discount allowed
Discount received
Suspense account
Dr
£
500
500
Cr
£
1000
© Hodder Education 2008