Types of Errors in Accounting
"To err is human, but to detect and correct errors is accounting."
Even with the double-entry system, errors can occur during recording, posting, or balancing. Understanding the types of errors is crucial for rectification.
Classification of Errors
Errors are classified based on two criteria:
Based on Nature
1. Errors of Omission
Complete Omission: Entire transaction not recorded at all.
- Example: Purchased goods for ₹10,000 but forgot to record.
- Effect on TB: Does NOT affect (both Dr. and Cr. missing).
Partial Omission: One aspect of the transaction is missing.
- Example: Debited Purchases ₹10,000 but forgot to credit Supplier.
- Effect on TB: AFFECTS (Dr. ≠ Cr.).
2. Errors of Commission
Wrong posting of correct amount to the wrong account of the same class.
Types:
- Wrong Account: Payment to Ram posted to Shyam's account (both are creditors).
- Wrong Side: Amount posted on wrong side (Dr. instead of Cr.).
- Wrong Totaling: Incorrect addition/subtraction.
- Wrong Balancing: Balance calculated incorrectly.
Example: Paid ₹5,000 to creditor Ram, but posted to creditor Mohan.
- Effect on TB: Does NOT affect if amount and side are correct.
3. Errors of Principle
Transaction recorded in violation of accounting principles.
Example: Purchase of furniture (asset) debited to Purchases A/c (expense).
- Correct Entry:
Furniture A/c Dr. ₹50,000 To Cash A/c ₹50,000 - Wrong Entry:
Purchases A/c Dr. ₹50,000 To Cash A/c ₹50,000 - Effect on TB: Does NOT affect (both Dr. and Cr. posted correctly, but wrong accounts).
4. Compensating Errors
Two or more errors that cancel each other out.
Example:
- Error 1: Sales overstated by ₹1,000 (excess credit).
- Error 2: Purchases overstated by ₹1,000 (excess debit).
- Effect on TB: Does NOT affect (errors compensate).
Based on Effect on Trial Balance
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Detailed Examples
Example 1: Error of Omission (Partial)
Transaction: Purchased goods for ₹8,000 from Mohan on credit.
Correct Entry:
Purchases A/c Dr. ₹.8,000
To Mohan A/c ₹8,000
Error: Only Purchases A/c debited, Mohan A/c not credited.
Effect:
- Trial Balance will NOT tally (Debit > Credit by ₹8,000).
Example 2: Error of Commission
Transaction: Received ₹5,000 from debtor Ramesh.
Correct Entry:
Cash A/c Dr. ₹5,000
To Ramesh A/c ₹5,000
Error: Credited to Suresh A/c instead of Ramesh A/c.
Effect:
- Trial Balance WILL tally (₹5,000 Dr., ₹5,000 Cr.).
- But Ramesh's account shows wrong balance.
- Suresh's account also shows wrong balance.
Example 3: Error of Principle
Transaction: Purchased computer for office use ₹60,000.
Correct Entry:
Computer A/c Dr. ₹60,000
To Cash A/c ₹60,000
Error: Debited to Purchases A/c.
Purchases A/c Dr. ₹60,000
To Cash A/c ₹60,000
Effect:
- Trial Balance WILL tally.
- But Profit & Loss will be wrong (expense overstated).
- Balance Sheet will be wrong (asset understated).
Example 4: Compensating Error
Errors:
- Sales Book total: ₹50,000 posted as ₹55,000 (excess Cr. ₹5,000).
- Purchases Book total: ₹30,000 posted as ₹35,000 (excess Dr. ₹5,000).
Effect:
- Trial Balance WILL tally (both sides overstated by ₹5,000).
- But individual accounts are wrong.
One-Sided vs Two-Sided Errors
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One-Sided Examples:
- Wrong totaling of Cash Book
- Posting ₹5,000 as ₹500
- Omitting to post credit side
Two-Sided Examples:
- Complete omission
- Error of principle
- Compensating errors
Real-World Case
Satyam Scam (2009) - Error or Fraud?
Satyam Computer Services overstated:
- Revenue by ₹5,000+ Crores
- Assets (fake cash) by ₹5,000+ Crores
Type of Error: This was NOT an error—it was deliberate fraud.
But from an accounting perspective, it was an Error of Principle (fake transactions recorded) combined with Error of Commission (wrong amounts).
Lesson: Internal controls and audits are essential to detect such issues.
Quiz: Types of Errors
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