Accountants prepare trial accounts to confirm that the accounts are correct. The total debit and credit balances shouldn’t be equal. This means that the transaction records in the original entry or subsidiary books are not correct. These errors need to be corrected immediately so final accounts can be prepared. Because some errors don’t affect the trial balance, the trial balance will not be able to reveal all types of errors. These errors cannot easily be identified with trial balance. These errors should be identified and corrected by an accountant before preparing trading, profit/loss accounts and balance sheets. This is because these documents must be corrected before we can get the right result. These accounts will only disclose the profit or loss, not the actual profit, find recommended reading.
You can classify all accounting errors as follows:
1. Errors in principle
An error in principle is an accounting transaction that is not consistent with basic principles. You can treat capital expenditure as revenue, and vice versa.
2. Clerical errors
These errors may also be sub-divided into the following:
(iii). Errors caused by omission
When a transaction isn’t fully or partially recorded on the books, it’s called an error of omission. It could be caused by the failure to record the transaction on the books of first entry or the inability to post the transaction from that account into the ledger.
(iii). Errors of Commission
A wrongly recorded entry can cause incorrect casting, casting and posting. While some commission errors can impact the trial balance, other errors do not. Register for a trial account to find out which errors can affect your trial balance.
(iii) Compensating errors
Sometimes an error is counterbalanced against another error in such a way that it isn’t disclosed to the trial balance. These are called compensating errors.
These errors can be broken down into two categories in order to correct them.
(a) An error can only affect one account
(b) Accounts affected by multiple errors
Errors that can cause damage to your property or reputation include:
(a) Casting errors;
(b) Error during posting
(c) Keep going;
(e), Exclusion from trial account
These errors should first be rectified. These errors can either be rectified by adding a note to the account or by making a journal entry.