Correction of Errors

Question 1

What are the five types of errors that could be made when posting journals?

Answer 1

• Error of Omission
• Error of Commission
• Error of Principle
• Compensating Error
• Transposition Errors

Question 2

Error of Omission

Answer 2

• failing to record transaction
• making one side of entry (DR/CR) but not the other
• could affect profit
• TB balance could be affected

Question 3

Error of Commission

Answer 3

• a mistake made when recording transactions
• transaction analysed incorrectly but still to the same account type
• wrong expenses type but still expense
• TB will balance
• no effect on profit

Question 4

Error of Principle

Answer 4

• breaks rules of accounting principle or concept
• expenditure treated as cost of Non Current Asset
• TB balances
• does affect profit

Question 5

Compensating Error

Answer 5

• 2 errors coincidentally are equal and opposing to each other and so correct one another
• TB balances

Question 6

Transposition Error

Answer 6

• Numbers are mixed round and entered wrong
• Error number will always be divisible by 9

Question 7

What are suspense accounts used for?

Answer 7

• account for debit/credit when uncertain where one side of transaction should be posted
• make a preliminary TB balance when an error is detected
• they are only temporary accounts, NEVER appear in final accounts
• when transposition error made, difference will be posted to suspense

Question 8

What are the steps to clear a suspense account?

Answer 8

• determine original accounting entry that was made
• what entry should have been made?
• what adjustment should be made?

Question 9

What is the proforma/layout of a statement of adjustments to profit?

Answer 9

• can be used to find the adjusted profit figure after adjustments have been made

Original Profit

adjustments either decreases or increases profit

total adjustments

Adjusted Profit