News Accounting Errors - Meaning, Causes Together With Types
Concept as well as Meaning
An error is a fault committed either innocently or internationally error is too a variety of fault committed inward this books of concern human relationship inward other, the fault which are committed inward the mag ledger as well as inward as well as In whatsoever other accounting contention are called accounting error. Thus, accounting error may live on defined equally the mistakes mostly committed technically or committed due to the lack of Blue Planet accounting principle. Generally, errors are committed innocently due to the lack of basic accounting principle. Generally, errors are committed innocently. However, around error may live on committed intentionally inward companionship to own got around nether benefit. These errors must live on located as well as rectified so equally to ascertain the truthful operating resultant as well as fiscal seat of the business.
Causes of Errors
Accounting errors tin own got house either intentionally or innocently. The brain causes of accounting errors are equally follows:
1. Lack of Accounting Knowledge: The books of accounts are maintained next for sure accounting principles, due to lack of accounting principles as well as rules, accounting error may occur.
2. Carelessness of Accountant: accounting errors may too resultant from carelessness on the business office of accounting maintaining books of accounts.
3. Lack of Sound Internal Check System: due to the lack of effective internal check, an accounting error occurs; internal banking concern check is a scheme where the operate of i employee is automatically checked yesteryear another.
4. Computer Flows: nowadays, modern concern organizations popular off on accounts (records) inward computers. The transactions recorded inward figurer are supposed to live on safer equally compare to other forms of tape keeping. However, Ineffective figurer plan which are accessible to the unauthorized may drive an accounting error.
Types of Errors inward The Books of Accounts
It the debit side as well as credit side of trial remainder is equal. It is assumed that entries made inward mag as well as ledgers are arithmetically correct. However, fifty-fifty if the sides of trial remainder agrees, it does non necessarily meant at the accounting records are costless from errors, because at that spot powerfulness live on around error which are non disclosed yesteryear trial balance. Therefore, trial remainder should non live on regarded equally a conclusive proof of the accuracy of the ledger.
Thus at that spot are 2 types of errors which may own got occurred inward the books of accounts:
1. Errors disclosed yesteryear trial balances
2. Errors non disclosed yesteryear trial balances
1. Errors Disclosed yesteryear Trial Balances
If the debit as well as credit side of trial remainder does non agree, it is a bear witness of the arithmetical inaccuracy of the entries made inward the mass of account. The next errors are disclosed yesteryear trial balance:
A) Wrong totaling or incorrect balancing of ledger account: if the concern human relationship inward ledger is wrongly totaled or balanced, so the trial remainder does non agree. For example, if sales accounts is wrongly totaled or balanced, it causes the disagreement of trial balance.
B) Posting of incorrect amount inward ledger accounts: the trial remainder volition non handgrip if incorrect figure is posted inward the accounts. For example, gods sold to KC for Rs.990 but KC concern human relationship was debited alongside Rs. 9,900, it increases the debit side of trial balance. Thus, the trial does non tally.
C) Posting on incorrect side of ledger account: when an exceptional sister posted on the ledger account, it causes disagreement of trial balance. For example: goods sold to Hari for rs. 5,000 as well as piece posting into Hari a/c, the amount was credited instead of beingness debited.
D) Double posting side of ledger account: sometimes an error occurs if an entry is posted twice inward i account. For example, if cash received from shyam Rs. 8,000 were correctly posted into cash account, but posted twice inward shyam's account, so the trial remainder volition non agree.
E) Omission of posting an amount inward ledger accounts: the trial remainder volition non handgrip it i facial expression of a transactions, if omitted to post service inward ledger account. For example, salary paid Rs. 23,000 was correctly posted into cash a/c but omitted to post service inward salary a/c as well as then, it volition drive an disagreement of the trial balance.
2. Errors non Disclosed yesteryear Trial Balance
The primary objective of preparing a trial remainder is to banking concern check the accuracy of fiscal transactions recorded inward the books of accounts. When the debit as well as credit side of trial remainder are equal. It is assumed that at that spot are no live on taken equally conclusive proof of the accuracy of transaction. However, if should non live on taken equally conclusive proof of the accuracy of transaction recorded inward mag as well as ledger, because at that spot are for sure errors which rest undetected inward spite of the understanding of trial balance. These errors are explained equally follows:
Errors of Omission
If a transaction is non recorded inward the books of master entry (journal) so both debit as well as credit effects of the transactions volition live on omitted (in ledger or trial balance) as well as the trial remainder nevertheless agree.
For example, if goods purchases from sirjana thapa Rs. 9,000 are non recorded inward the books at all, it agency neither buy a/c is debited nor sirjana thapa a/c is credited. As both debit as well as credit sides own got been affected yesteryear equal amount, so the trial remainder shall volition agree.
One Sided Errors
Generally i sided errors occurred inward the next cases:
• When a subsidiary mass over instance (totaled more) or nether instance (totalized less)
• When posting is omitted inward i concern human relationship of the transaction.
• When seat is made alongside incorrect amount.
• When seat is made at the incorrect side of an account.
Rectification of One Sides Error
Rectification of i side’s errors tin live on done inward the next ways:
• Rectification of i error located earlier training of trial balance.
• If i sided errors are located earlier preparing the trial balance. There is no necessitate to move yesteryear rectifying entries. Rather the ones sides’ error is rectified yesteryear posting an additional amount on the affected side of the ledger accounts.
Rectification of One Sided Error Located afterward the Preparation of Trial Balance
When i sided error are located earlier preparing trial balance, the error are rectified yesteryear passing mag entries. In the sided error, i concern human relationship is either debited or credited for the rectify as well as suspense concern human relationship is too debited of credited to consummate the double entry.
Suspense Account
When the trial remainder does non agree, an endeavour is made to located error as well as rectified for the rectification as well as suspense concern human relationship is too debited or credited to consummate the double entry.them. But if the errors cannot live on located easily as well as chop-chop as well as the same time. If the concluding accounts are to live on prepared urgently, the departure inward trial remainder is rectified yesteryear writing suspense's concern human relationship to the smaller side of trial balance. Thus, suspense's concern human relationship is a dummy ledger created alongside a thought to brand the debit as well as credit of trial remainder equal.
Rectification of One Sided Errors through Suspense Account
The next points should live on considered piece rectifying the i sided errors alongside the aid of suspense account:
• Suspense concern human relationship is used to those errors which impact trial balance.
• If the rectified concern human relationship is debited inward rectifying entry, suspense concern human relationship is credited as well as if rectified concern human relationship is credited inward rectifying entry, suspense concern human relationship volition live on debited.
Two Sided Errors
Errors which impact 2 or to a greater extent than concern human relationship are called 2 sided errors. Such errors are corrected yesteryear passing rectifying entries. The 2 sided errors include the next types of errors.
1. Omission to Pass on Entry inward the Books of Account: When a transaction is omitted to tape inward journal, it affected 2 accounts. For example, if goods buy from shiva is unrecorded inward the books of account. It affects i. buy a/c as well as it. Shiva a/c. therefore it is a 2 sides error.
2. Posting degree Journal to Wrong Ledger Accounts: It a transaction is correctly recorded inward mag but posted to incorrect concern human relationship inward ledger, it too affected. For example, if goods buy from Mahesh is posted t Mohan's concern human relationship it affects 2 accounts because it should been posted to Mahesh concern human relationship but it was wrongly posted to mohan's account.
3. Errors of Principle: If a transaction is recorded without next the regulation of accounting, it too affects. For example, if slice of furniture buy is recorded through buy mass it affected i. buy a/c it. Furniture a/c.
Rectification of Two Sided Error earlier as well as afterward Preparation of Trial Balance
Since the 2 sided errors affects 2 or to a greater extent than accounts, correction of these errors needs to brand rectified mag entry. While rectifying such errors, i concern human relationship is debited as well as other concern human relationship is debited as well as other concern human relationship is credited.
1. Find right entry: what should own got been the right mag entry?
2. Find incorrect entry: what mistakes were genuinely done. i.e. what was the incorrect mag entry?
3. Find rectifying entry: for this the incorrect entry should live on reversed & adjusted alongside right entry?