Summary of Errors

• Errors which do not give rise to a difference in the Trial Balance totals are corrected by a double entry in the ledger accounts concerned. Their corrections do not involve the Suspense Account.  Such errors are listed as follows: 

• Errors which cause a difference in the Trial Balance totals are corrected by a double entry, one of which has to be made in the Suspense Account set up to accommodate the difference in the books.  These errors are  listed as follows: 

• If an entry is made on the wrong side of an account, the correction will require an amount double the original error.

• If errors are discovered after the preparation of the final accounts and the Balance Sheet, the net profit and the Balance Sheet will have to be amended to correct the effect of the errors.

                               i.            Errors of Omission;  

                             ii.            Errors of Commission;  

                          iii.            Errors of Principle;    

                           iv.            Errors of Original Entry;  

                             v.            Compensating Errors;  

                           vi.            Complete Reversal of Entries.

                               i.            Errors that involve one side of a double entry, i.e. the entry may be omitted, or be on the wrong side, or be of the wrong amount;  

                             ii.            Errors resulting from undercasts or overcasts in the subsidiary books, or in ledger accounts.

Errors Revealed by the Trial Balance and Their Correction

A Suspense Account is opened to take care of errors which have caused an imbalance in the Trial Balance but which have not yet been detected in the books of the business.  When they are discovered, they have to be corrected by a double entry, one entry in the Suspense Account and the other in the account concerned.

The Suspense Account will have a credit balance when the credit total in the Trial Balance is short and a debit balance when the debit total is short.  The Suspense Account is included in the Balance Sheet to enable it to balance.  A credit balance in the Suspense Account will be written on the liability side while a debit balance will appear on the assets side.

The Suspense Account does not appear in the revised Balance Sheet because the difference in the books has been accounted for and the Suspense Account is closed.

Errors Revealed by the Trial Balance

These errors are as follows:

1. Errors in Calculation

If there is any miscalculation of the Trial Balance totals or the net account balances, the Trial Balance will not balance, e.g. there was an error in the calculation of the cash balance, causing the Trial Balance totals not to balance too.

2. Errors of Omission of One Entry

Omission of either the debit or credit entry of a transaction will cause the totals of the Trial Balance not to agree, e.g. a cheque $500 received for commission was debited to the Bank Account only.

3. Posting to the Wrong  Side of an Account

Entry into the wrong side of an account will cause one side of the ledger to be more than the other, e.g. a cheque of $800 paid to creditor, K. Wang was credited instead of debited to his account.

4. Errors in Amount

If the debit entry of a transaction differs in amount with the credit   entry, the Trial Balance will not balance, e.g. cash $134 received from Clement was debited to the Cash Account as $134 and credited to the account for Clement as $143.

Correction of Errors in Trial Balance

The following types of errors do not affect the equality of the Trial Balance, i.e. the Trial Balance will still be in agreement although there may be errors in the accounts.

1. Errors of Omission

A transaction is omitted completely from the books so that there is no debit and credit entry of the transaction, e.g. drawings of $50 cash by the proprietor was not recorded.

When a transaction has been completely omitted from the books, it can be corrected by simply making a double entry to record the transaction.

2. Errors of Commission

An entry is posted to the correct side of the ledger but to the wrong account, e.g. payment of $100 cash by customer A. Joan was wrongly posted to the account of another customer, B. Johan. 

A debit or credit entry has been posted to the wrong account of the same category.  For instance, an entry has been made to Tom's Account rather than Tam's account, both of which belong to the category of debtors.

3. Errors of Principle

An entry made in the wrong class of account.  For example, when an expense is treated as an asset and vice versa, e.g. repairs to buildings $400 was debited to the Building Account.

A debit or credit entry is posted to an account of a different category.  For instance, purchase of furniture for business use has been recorded in the Purchases Account.  

4. Errors of Original Entry

The original figure may be incorrectly entered although the correct double-entry principle has been observed using this incorrect figure, e.g. credit sales of $87 to Ben was recorded in both the Sales Account and Ben's account as $78.

A wrong amount is recorded in a subsidiary book or a document such as an invoice and subsequently posted to the ledger accounts.

5. Compensating Errors

Errors on one side of the ledger are compensated by errors of the same amount on the other side, e.g. the Purchases Account and Sales Account were both overcast by $150.

An error or errors on the debit side is compensated by an error or errors of equal amount on the credit side.

6. Complete Reversal of Entries

An account that should be debited is credited and vice versa, e.g. a cheque $200 received from Charlie was debited to the account of Charlie and credited to the Bank Account.

When recording a transaction, the debit entry is made in the account that should be credited and the credit entry is made in the account that should be debited.