Theory of error & rectification
Discuss error & rectification & elaborate its types? What are the steps to locate a mistake? Ans. After preparing ledger accounts a trial balance is taken out where debit & credit balances are separately listed & totaled. If the two totals do not agree it is definite that there have been some errors. Types of error: basically there are two types of error
Errors of principle- when a transaction is recorded in contravention of accounting principles, like treating the purchases of an asset as an expense it is an error of principle. In this case there is no effect on the trial balance since the amounts are placed on the correct side though in wrong account. Clerical errors- these errors arise because of mistakes committed in the ordinary course of the accounting work. These are of three types: Errors of omission: if a transaction is completely or partially omitted from the books of account, it will be a case of error of omission. Examples would be not recording credit purchases of furniture or not posting an entry into the ledger. Errors of commission: if while making an entry the wrong amount is written either in the subsidiary book or in ledger or the entry is made on the wrong sides of the account, the error will be an error of commission. Compensating error: if the effect of the errors committed cancels out the errors will be called compensating errors. The trial balance will not agree
From another point of view errors may be divided into two categories: Those that affect the trial balance- because of the errors the trial balance do not agree & Those that do not affect the trial balance- it will agree in spite of errors
The errors that affect the trial balance are the following:
Mistake in transferring the balance of an account to the trial balance or omitting to write the balance of an account in the trial balance. Mistake in balancing an account.
Mistake in posting in so far as the amount is wrongly written. A common...
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