Accountants prepare trial accounts to ensure that they are accurate. If the total of debit and credit balances is not equal, it means that the accounts have been incorrectly recorded in the books of original entry. This is why it is so important that we find these errors and correct them before we proceed with final accounts. We know that trial balance doesn’t reveal all kinds errors on website. Some errors have no effect on the total trial balance. These errors cannot all be identified with trial balance. Before an accountant prepares trading, profit & loss account and balance sheet, he should put in effort to correct both errors. Because if they are not rectified, these will not give the correct result. Profit and loss as disclosed by them will not be actual profit or loss.
You can classify accounting errors as follows:
1. Principle Errors
An error of principle is when transactions are recorded in violation of the fundamental principles. You can see an example of this: Revenue expenditure could be treated as capital expense or vice versa.
2. Clerical Errors
These errors may be further sub-divided, as follows:
(iii) Errors due to omission
A transaction that is not entirely or partially recorded in the book is called an error of neglect. It could be related either to the omission to record a transaction in books of original entries or to the omission that a transaction was posted from the books to the account.
(iii. Errors during commission
If an entry is incorrectly entered, it can cause incorrect casting, calculation, casting or balance. Some errors of Commission affect the trial account, while others don’t. A trial balance is a way to reveal errors that could affect the trial amount.
(iii) Compensating errors
Sometimes an error is counterbalanced in a way that is not visible by the trial balance. These are known as compensating or reversible errors.
The rectification of errors can be divided in two groups:
(a.) Account-specific errors
(b). Errors that affect multiple accounts.
One account may be affected by an error
Errors can affect:
(a) Casting errors;
(b). Error in posting
(c), Carry on
(e) Exclusion from trial balance
These errors should first be discovered and corrected. These errors should be corrected by journal entry or an explanation note in the account.