CORRECTION OF ERRORS
An ERROR
• is an unintentional mistake.
• it is generally discovered months after the
cut-off (accounts preparation) date.
• it cannot be simply erased [rub out] or torn out
when it (the ERROR) has been discovered
ERRORS
• must be corrected via the double-entry process
– [1st ] The correction is to be recorded in the JOURNAL
– [2nd ] The correction is to be posted in the LEDGERS
ERRORS
There are TWO types which may occur in the
recording of accounting information:
• those which DO NOT AFFECT the Trial Balance.
• those which DO AFFECT the Trial Balance.
ERRORS WHICH DO NOT AFFECT THE TRIAL BALANCE
COMMISSION
Where similar PERSONAL accounts become mixed up (mistaken) in
posting
OMISSION
Where a valid transaction was NOT posted (omitted) IN THE
BOOKS.
PRINCIPLE
Where a posting was made to the wrong TYPE of account
REVERSAL OF ENTRY Where the clerk debited the side that should be credited; and
credited the side that should be debited.
ORIGINAL ENTRY
Where the figures recorded IN THE BOOKS, for a valid transaction,
were entered incorrectly from the very beginning.
COMPENSATION
Where one [addition/subtraction] mistake made on the debit side,
is cancelled out by a similar mistake on the credit side.
Correcting an error that DNATTB
– Have the general journal at hand
– analyze the mistake that was made
– Determine action required to cancel the mistake
– correct what is wrong!
– Journalize the required action
– Add the explanatory narrative
ERRORS WHICH DO AFFECT THE TRIAL BALANCE
CASTING
(OVER/UNDER)
Where the totalling of a set of figures are incorrectly
stated
ONE_HALF POSTING Where data was posted to only one of the two accounts
involved in the transaction. [remember a transaction
MUST be posted into TWO accounts]
SAME_SIDE POSTING Where data was posted on the same side of both
accounts involved in the transaction [eg both were
debited].
TRANSPOSITION
Where data was posted to corresponding accounts, but
the figures on one of the accounts DO NOT match the
figures on the other for that same transaction.
The Suspense Account
• ERRORS that do affect the trial balance require the
services of the Suspense account.
• It holds the cancelling half of the transaction, so as to
prevent the clerk from changing the part of the
posting that was already correct.
• It follows the same rules for double-entry posting
EXAMPLES (DNATTB)
COMMISSION
$250 paid by R Jones had been posted by us to R Joan’s
account.
OMISSION
A purchases invoice for $340 goods from Gibbs was not
entered in the books.
PRINCIPLE
A company van sold for $8000 had been entered in the
sales account.
REVERSAL OF ENTRY
$30 for light had been debited in the Cash Book and
credited on the Light a/c
ORIGINAL ENTRY
Cash sales for $324 had been entered in all of the books
as $342
COMPENSATION
Both discount columns on the Cash Book had been over
added by $20
EXAMPLES (DATTB)
OVER/UNDER
CASTING
The total on the Sales account should be $15600 and
NOT $15650
ONE_HALF POSTING $250 paid by Jones to settle his account was not
recorded in the Cashbook
SAME_SIDE POSTING Sale of company van for $8000 was also debited in the
(Sale of Assets)Van a/c
TRANSPOSITION
Purchases of $456 had been posted in the Cashbook as
$546