Accounting Errors

Types of Errors in Accounting

Accounting errors can occur in double entry bookkeeping for a number of
reasons. Accounting errors are not the same as fraud, errors happen
unintentionally, whereas fraud is a deliberate and intentional attempt to
falsify the bookkeeping entries.
An accounting error can cause the trial balance not to balance, which is
easier to spot, or the error can be such that the trial balance will still balance
due to compensating bookkeeping entries, which is more difficult to identify.

Accounting Errors that Affect the Trial

Balance
Errors that affect the trial balance are usually a result of a one sided entry in
the accounting records or an incorrect addition.
As a temporary measure, to balance the trial balance. the difference in the
trial balance is allocated to a suspense account, and a suspense account
reconciliation is carried out at a later stage.
For example, suppose the trial balance showed total debits of 84,600 but
total credits of 83,400 leaving a difference of 1,200 as shown below.
Account
Trial Balance Totals

Debit

Credit

84,600

83,400

Difference

1,200

Total

84,600

84,600

Suspense Accounts Trial Balance Difference

To make the trial balance balance a single entry is posted to the accounting
ledgers in a suspense account.
Account

Debit

Suspense account
Suspense Account Posting

Credit
1,200

When the accounting error is identified a correcting entry is made. Suppose

the difference was an addition error on the rent account, then the correcting
entry would be as follows:
Account
Suspense account

Debit

Credit

1,200

Rent

1,200
Suspense Account Reconciliation Posting

Errors Which do not Affect the Trial Balance

Accounting errors that do not affect the trial balance fall into one of six
categories as follows:
1.
2.
3.
4.
5.
6.

Error of Principle in Accounting

Errors of Omission in Accounting
Error of Commission
Compensating Error
Error of Original Entry
Complete Reversal of Entries

Error of Principle in Accounting

An error of principle in accounting occurs when the bookkeeping entry is
made to the wrong type of account. For example, if a 1,000 sale is credited
to the sundry expenses account instead of the sales account, the correcting
entry would be as follows:
Account
Sundry expenses
Sales

Debit

Credit

1,000
1,000

Accounting Errors Error of Principle in Accounting

Example

Errors of Omission in Accounting

Errors of omission in accounting occur when a bookkeeping entry has been
completely omitted from the accounting records.

If the payment 2,000 to a supplier has been omitted then the correcting
entry would be as follows:
Account

Debit

Accounts payable

Credit

2,000

Cash

2,000

Accounting Errors Errors of Omission in Accounting

Example

Error of Commission
An accounting error of commission occurs when an item is entered to the
correct type of account but the wrong account. For example is cash received
of 3,000 from Customer A is credited to the account of Customer B the
correcting entry would be.
Account

Debit

Accounts receivable Cust. B

Credit

3,000

Accounts receivable Cust. A

3,000

Accounting Errors Error of Commission

Compensating Error
A compensating error occurs when two or more errors cancel each other out.
For example, if the fixed assets account is incorrectly totalled and
understated by 600, and the rent account is incorrectly totalled and
overstated by 600, then the posting to correct the error would be as follows:
Account
Fixed assets

Debit

Credit

600

Rent

600
Accounting Errors Compensating Error

Error of Original Entry

An error of original entry occurs when an incorrect amount is posted to the
correct accounts.

A particular example of an error of original entry is a transposition error

where the numbers are not entered in the correct order. For example, if cash
paid to a supplier of 2,140 was posted as 2,410 then the correcting entry of
270 would be.
A good indicator for a transposition error is that the difference (in this case
270) is divisible by 9.
Account

Debit

Cash

Credit

270

Accounts payable

270

Accounting Errors Error of Original Entry

Complete Reversal of Entries

Complete reversal of entries errors occur when the correct amount is posted
to the correct accounts but the debits and credits have been reversed. For
example if a cash sale is made for 400 and posted incorrectly as follows:
Account

Debit

Sales

Credit

400

Cash

400
Accounting Errors Incorrect posting

Then to correct the accounting error the original entry must be reversed and
the correct entry made, this can be achieved by doubling the original
amounts as follows:
Account

Debit

Credit

Sales

800

Cash

800

Accounting Errors Complete Reversal of Entries

The type of accounting errors that do not affect the trial balance are
summarized in the table below.
Accounting Errors
Error of Principle in Accounting

Description
Correct amount, wrong type of account

Errors of Omission in Accounting

Entry missed from accounting records

Error of Commission

Correct amount and type of account but wrong accou

Compensating Error

Two or more errors balance each other out

Error of Original Entry

Correct accounts, wrong amounts

Complete Reversal of Entries

Correct amount and account, entries reversed

Summary of Accounting Error Types