Steps to Locate Errors

We make mistakes at some point in our lives. As soon as he notices them, he corrects them. Similarly, while recording and posting transactions, an accountant can make mistakes or commit errors. These are referred to as ‘Accounting Errors.’ Accounting errors are errors made by people who are in charge of recording and managing a business’s accounts during the accounting process. 

In Accounting, errors can take the following forms:

• Leaving a business transaction unrecorded in the Journal or Special Purpose Books
• Not publishing recorded transactions in separate books of accounts to the appropriate ledger accounts
• Errors in totaling or carrying totals forward to the next page
• Making a mistake by incorrectly recording an amount, writing it in the wrong account, or writing it on the wrong side of the account

Types of Errors

Accounting errors can be classified on the basis of following two factors:

1. On the basis of their nature
2. On the basis of their impact on ledger accounts

On the basis of their nature

Errors of Omission

A transaction is usually documented initially in the books of accounts. The accountant, on the other hand, may not record it at all or only record it in part. It’s known as an omission error. For example, products purchased on credit are not recorded in the Purchases Book, and a customer’s discount is not recorded in the Discount A/c ledger. It’s a complete omission in the first example. As a result, the identical sum affects both debit and credit cards. As a result, the Trial Balance is unaffected. The second scenario is one of partial omission. It only impacts one account, the Discount A/c. As a result, it has an impact on Trial Balance.

Errors of Commission

An error of commission occurs when a transaction is recorded but an error is made during the recording process.

There are several forms of commission errors:

• Errors made in the Special Purpose books while registering a transaction.
• Purchases made on credit from Raj are noted in the Sales Book rather than the Purchases Book.
• Although the recording in the book is true, the quantity stated is incorrect. For example, commodities sold to Shalu for Rs.4000 were entered as Rs.2000 in the Sales Book.

In each of the examples above, the identical sum affects both accounts, debiting one and crediting the other. As a result, the trial balance will be unaffected.

Wrong Totalling 

There could be an error in totaling the Special Purpose Book or the accounts. The totaled sums could be less or more than the actual amount. The first is an example of undercasting, whereas the second is an example of overcasting. For instance, the total of the Purchases Book is written as Rs.44800, although the actual total is Rs.44300, and the total of the Sales Day Book is written as Rs.52500, whereas the true total is Rs.52900. It’s a case of a single account error influencing the trial balance.

Wrong Balancing 

The ledger accounts are balanced when the books of accounts are closed at the end of the accounting period. The totals of the two sides of the account are used to compute the balance. It could have been calculated incorrectly. For example, the debit column of Mohan’s account totals Rs.8600, whereas the credit column totals Rs.6800. The computed balance is Rs.1600, however the actual balance is Rs.1800. Because it only affects one account, the Trial Balance is impacted.

Errors of Principle

Capital and revenue categories are used to categorise income and spending items. Capital income and capital expenditure should be documented as capital items, whereas revenue income and revenue expenditure should be recorded as revenue items, according to accounting principles. When transactions are recorded in violation of this principle, such as when a capital item is recorded as a revenue item and a revenue item is recorded as a capital item, it is referred to as a principle error. For instance, Rs. 5000 spent on building repairs is deducted from Building A/c when it should have been deducted from Repair to Building A/c.
It’s a mistake of principle since building repairs are a revenue expense, but they’ve been charged to Building A/c as a capital expense. Because both the credit and debit sides are affected, the trial balance is unaffected by such inaccuracies.

On basis of their impact on ledger accounts

Errors can affect one side of an account, such as the debit or credit side, or both sides, such as both debit and credit, hence errors can be classified as:

One – sided errors

One-sided errors are accounting errors that affect only one side of an account, which could be the debit or credit side. The cause of this problem is that while publishing a recorded transaction, one account is posted correctly while the related account is not.

Sales Book, for example, is clouded by Rs.1000. In this situation, only the Sales A/c has been incorrectly credited with an excess amount of Rs.1000, but the individual debtors’ corresponding accounts have been correctly debited. Another example of a one-sided error is when Ashita’s payment of Rs 2500 is incorrectly debited from her account. Only Ashita’s account is affected in this situation, and the cash-book amount is accurately stated.

Two – sided errors

Two-sided error refers to an error that affects two independent accounts, one on the debit side and the other on the credit side. A purchase of machinery for Rs.1000 has been documented in the Purchases Book as an example of such a mistake. Purchases A/c are incorrectly charged in this situation, whereas Machinery A/c is not debited. As a result, two accounts, Purchases A/c and Machinery A/c, are impacted. As  we have learnt about the types of errors, we are now in the position of learning about the steps to locate an error.

Locating Errors

It goes without saying that if there are any faults, they must be found as soon as possible. Following the discovery of the errors, they must be corrected. Accounting problems must also be located and detected as soon as feasible once they are discovered. What is the best way to find the errors?

The following are the steps to take in order to discover accounting errors:

When the Trial Balance does not agree:

• In Trial Balance, look at the columnar totals.
• Check that the ledger’s balances (including cash and bank balances) have been written and are in the correct trial balance column, i.e. debit balance in debit column as well as credit balance in credit column.
• With trial balance, find the exact figure of difference and see that: There has been no record of a similar balance removed from the Trial Balance, or A balance equal to half of difference amount, but printed on  wrong side of trial balance
• Check the Special Purpose Book totals again.
• Check that the ledger’s numerous accounts are all in balance.
• A balance equal to half of the dissimilar amount, but written on the incorrect side of the trial balance.

Conclusion

Accounting errors are caused by many factors, which can only be rectified upon properly being located. Errors in accounting need to be curbed out efficiently for avoiding future distortion in Trial Balance and Ledger. This article has sufficiently provided information in regard to locating the errors in accounting as well as showered light upon the types of errors prevalent in accounting.