BA10_C32.

qxd 16/12/04 1:17 pm Page 378

chapter

32 Errors not affecting trial balance

agreement

Learning objectives
After you have studied this chapter, you should be able to:
l correct all errors which do not affect trial balance totals being equal
l distinguish between the different kinds of errors that may arise

Introduction
In this chapter, you’ll learn how to identify and correct a range of errors that can
arise when financial transactions are entered in the ledger accounts.

32.1 Types of error

In Chapter 6 it was seen that if we followed the rules
l every debit entry needs a corresponding credit entry
l every credit entry needs a corresponding debit entry

and entered transactions in our ledgers using these rules then, when we extracted the trial bal-
ance, the totals of the two columns would be the same, i.e. it would ‘balance’.
Suppose we correctly entered cash sales £70 to the debit of the Cash Book, but did not enter
the £70 to the credit of the sales account. If this were the only error in the books, the trial bal-
ance totals would differ by £70. However, there are certain kinds of error which would not
affect the agreement of the trial balance totals, and we will now consider these:
1 Errors of omission – where a transaction is completely omitted from the books. If we sold
£90 goods to J Brewer, but did not enter it in either the sales or Brewer’s personal account,
the trial balance would still ‘balance’.
2 Errors of commission – this type of error occurs when the correct amount is entered but
in the wrong person’s account, e.g. where a sale of £11 to C Green is entered in the account of
K Green. It will be noted that the correct class of account was used, both the accounts con-
cerned being personal accounts.
3 Errors of principle – where an item is entered in the wrong class of account, e.g. if purchase
of a fixed asset, such as a van, is debited to an expenses account, such as motor expenses
account.
4 Compensating errors – where errors cancel each other out. If the sales account was added
up to be £10 too much and the purchases account was also added up to be £10 too much,
then these two errors would cancel out in the trial balance. This is because the totals of both
the debit side and the credit side of the trial balance will be £10 too much.

378
BA10_C32.qxd 16/12/04 1:17 pm Page 379

Chapter 32 l Errors not affecting trial balance agreement

5 Errors of original entry – where the original figure is incorrect, yet double entry is still
observed using this incorrect figure. An instance of this could be where there were sales of
£150 goods but an error is made in calculating the sales invoice. If it were calculated as £130,
and £130 were credited as sales and £130 were debited to the personal account of the cus-
tomer, the trial balance would still balance.
6 Complete reversal of entries – where the correct accounts are used but each item is shown on
the wrong side of the account. Suppose we had paid a cheque to D Williams for £200,
the double entry of which is Cr Bank £200, Dr D Williams £200. In error it is entered as
Cr D Williams £200, Dr Bank £200. The trial balance totals will still agree.
7 Transposition errors – where the wrong sequence of the individual characters within a num-
ber was entered. For example, £142 entered instead of £124. This is quite a common error
and is very difficult to spot when the error has occurred in both the debit and the credit
entries, as the trial balance would still balance. (It is more common for this error to occur on
one side of the double entry only.)

32.2 Correction of errors

Most errors are found at a date later than the one on which they are first made. When we correct
them we should not do so by crossing out items, tearing out accounts and throwing them away,
or using chemicals to make the writing disappear.

Activity
32.1 In which book should all the correcting double entries first be entered?

We make corrections to double entry accounts by preparing journal entries. We should:

1 Show the corrections by means of journal entries, then

2 Show the corrections in the double entry set of accounts, by posting these journal entries to
the ledger accounts affected.

1 Error of omission
The sale of goods, £59 to E George, has been completely omitted from the books. We must cor-
rect this by entering the sale in the books. The journal entries for the correction are now shown:*

The Journal
Dr Cr

£ £
E George 59
Sales account 59
Correction of omission of Sales Invoice Number . . . from sales journal

*Note: in all these examples, the folio column has been omitted so as to make the example clearer.

2 Error of commission
A purchase of goods, £44 from C Simons, was entered in error in C Simpson’s account. To cor-
rect this, it must be cancelled out of C Simpson’s account, and then entered where it should be in
C Simons’ account. The double entry will be:

379
BA10_C32.qxd 16/12/04 1:17 pm Page 380

Part 4 l Adjustments for financial statements

C Simpson

20X5 £ 20X5 £
Sept 30 C Simons: Error corrected 44 Sept 30 Purchases 44

C Simons

20X5 £
Sept 30 Purchases:
Entered originally in
C Simpson’s account 44

The Journal entry will be:

The Journal
Dr Cr

£ £
C Simpson 44
C Simons 44
Purchase Invoice Number . . . entered in wrong personal account, now corrected

In fact, the journal entry should be made before the double entry in the accounts is completed.
The example was shown as above to make it easier to understand.

3 Error of principle
The purchase of a machine, £200, is debited to the purchases account instead of being debited to
a machinery account. We therefore cancel the item out of the purchases account by crediting that
account. It is then entered where it should be by debiting the machinery account.

The Journal
Dr Cr

£ £
Machinery account 200
Purchases account 200
Correction of error: purchase of fixed asset debited to purchases account

4 Compensating error
The sales account is overcast by £200, as also is the wages account. The trial balance therefore
still balances. This assumes that these are the only two errors found in the books.

The Journal
Dr Cr

£ £
Sales account 200
Wages account 200
Correction of overcasts of £200 each in the sales account and the
wages account which compensated for each other

5 Error of original entry

A sale of £38 to A Smailes was entered in the books as £28. It needs another £10 of sales entering
now.

380
BA10_C32.qxd 16/12/04 1:17 pm Page 381

Chapter 32 l Errors not affecting trial balance agreement

The Journal
Dr Cr

£ £
A Smailes 10
Sales account 10
Correction of error whereby sales were understated by £10

6 Complete reversal of entries

A payment of cash of £16 to M Dickson was entered on the receipts side of the Cash Book in
error and credited to M Dickson’s account. This is somewhat more difficult to adjust. First must
come the amount needed to cancel the error, then comes the actual entry itself. Because of this,
the correcting entry is double the actual amount first recorded. We can now look at why this
is so:
What we should have had:

Cash

£
M Dickson 16

M Dickson

£
Cash 16

was entered wrongly as:

Cash

£
M Dickson 16

M Dickson

£
Cash 16

We can now see that we have to enter double the original amount to correct the error:

Cash

£ £
M Dickson 16 M Dickson (error corrected) 32

M Dickson

£ £
Cash (error corrected) 32 M Dickson 16

Overall, when corrected, the £16 debit and £32 credit in the cash account means there is a net
credit of £16. Similarly, Dickson’s account shows £32 debit and £16 credit, a net debit of £16.
As the final (net) answer is the same as what should have been entered originally, the error is
now corrected.

381
BA10_C32.qxd 16/12/04 1:17 pm Page 382

Part 4 l Adjustments for financial statements

The Journal entry appears:

The Journal
Dr Cr

£ £
M Dickson 32
Cash 32
Payment of cash £16 debited to cash and credited to
M Dickson in error on . . . Error now corrected

7 Transposition error
A credit purchase from P Maclaran costing £56 was entered in the books as £65. The £9 error
needs to be removed.

The Journal
Dr Cr

£ £
P Maclaran 9
Purchases account 9
Correction of error whereby purchases were overstated by £9

32.3 Casting
You will sometimes notice the use of the term casting, which means adding up. Over-casting
means incorrectly adding up a column of figures to give an answer which is greater than
it should be. Undercasting means incorrectly adding up a column of figures to give an answer
which is less than it should be.

Learning outcomes
You should now have learnt:
1 How to describe each of a range of possible errors that can be made when
recording financial transactions in the accounts that will not be detected by
producing a trial balance.
2 How to identify and correct each of these types of errors.
3 That when errors are found, they should be amended by using proper double
entry procedures.
4 That all corrections of errors should take place via the Journal, where entries
are first recorded before being posted to the appropriate ledger accounts.

Answer to activity
32.1 The Journal.

382
BA10_C32.qxd 16/12/04 1:17 pm Page 383

Chapter 32 l Errors not affecting trial balance agreement

Review questions
32.1 Give an example of each of the different types of error which are not revealed by a trial
balance?

32.2 Show the journal entries necessary to correct the following errors:
(a) A sale of goods £412 to T More had been entered in T Mone’s account.
(b) The purchase of a machine on credit from J Frank for £619 had been completely omitted from
our books.
(c) The purchase of a computer for £550 had been entered in error in the Office Expenses
account.
(d) A sale of £120 to B Wood had been entered in the books, both debit and credit, as £102.
(e) Commission received £164 had been entered in error in the Sales account.
(f ) A receipt of cash from T Blair £68 had been entered on the credit side of the cash book and
the debit side of T Blair’s account.
(g) A purchase of goods £372 had been entered in error on the debit side of the Drawings
account.
(h) Discounts Allowed £48 had been entered in error on the debit side of the Discounts Received
account.

32.3A Show the journal entries needed to correct the following errors:
(a) Purchases £1,410 on credit from A Ray had been entered in B Roy’s account.
(b) A cheque of £94 paid for printing had been entered in the cash column of the cash book
instead of in the bank column.
(c) Sale of goods £734 on credit to D Rolls had been entered in error in D Rollo’s account.
(d) Purchase of goods on credit L Hand £819 entered in the correct accounts in error as £891.
(e) Cash paid to G Boyd £64 entered on the debit side of the cash book and the credit side of
G Boyd’s account.
(f ) A sale of fittings £320 had been entered in the Sales account.
(g) Cash withdrawn from bank £200 had been entered in the cash column on the credit side of
the cash book, and in the bank column on the debit side.
(h) Purchase of goods £1,182 has been entered in error in the Furnishings account.

32.4 After preparing its draft final accounts for the year ended 31 March 20X6 and its draft
balance sheet as at 31 March 20X6 a business discovered that the stock lists used to compute the
value of stock as at 31 March 20X6 contained the following entry:
Stock item Number Cost per unit Total cost
Y 4003 100 £1.39 £1,390
Required:
(a) What is wrong with this particular entry?
(b) What would the effect of the error have been on
(i) the value of stock as at 31 March 20X6?
(ii ) the cost of goods sold for the year ended 31 March 20X6?
(iii) the net profit for the year ended 31 March 20X6?
(iv) the total for Current Assets as at 31 March 20X6?
(v) the Owner’s Capital as at 31 March 20X6?
(Association of Accounting Technicians)

32.5 Give the journal entries needed to record the corrections of the following. Narratives are
not required. ‘

383
BA10_C32.qxd 16/12/04 1:17 pm Page 384

Part 4 l Adjustments for financial statements

‘ (a)
(b)
Extra capital of £5,000 paid into the bank had been credited to Sales account.
Goods taken for own use £72 had been debited to Sundry Expenses.
(c) Private rent £191 had been debited to the Rent account.
(d ) A purchase of goods from D Pine £246 had been entered in the books as £426.
(e) Cash banked £410 had been credited to the bank column and debited to the cash column in
the cash book.
(f ) Cash drawings of £120 had been credited to the bank column of the cash book.
(g) Returns inwards £195 from G Will had been entered in error in T Young’s account.
(h) A sale of a printer for £100 had been credited to Office Expenses.

32.6A Journal entries to correct the following are required, but the narratives can be omitted.
(a) Rent Received £430 have been credited to the Commissions Received account.
(b) Bank charges £34 have been debited to the Business Rates account.
(c) Completely omitted from the books is a payment of Motor Expenses by cheque £37.
(d) A purchase of a fax machine £242 has been entered in the Purchases account.
(e) Returns inwards £216 have been entered on the debit side of the Returns Outwards account.
(f ) A loan from G Bain £2,000 has been entered on the credit side of the Capital account.
(g) Loan interest of £400 has been debited to the Van account.
(h) Goods taken for own use £84 have been debited to the Purchases account and credited to
Drawings.

32.7A Thomas Smith, a retail trader, has very limited accounting knowledge. In the absence of
his accounting technician, he extracted the following trial balance as at 31 March 20X8 from his
business’s accounting records:

£ £
Stock in trade at 1 April 20X7 10,700
Stock in trade at 31 March 20X8 7,800
Discounts allowed 310
Discounts received 450
Provision for doubtful debts 960
Purchases 94,000
Purchases returns 1,400
Sales 132,100
Sales returns 1,100
Freehold property: at cost 70,000
Provision for depreciation 3,500
Motor vehicles: at cost 15,000
Provision for depreciation 4,500
Capital – Thomas Smith 84,600
Balance at bank 7,100
Trade debtors 11,300
Trade creditors 7,600
Establishment and administrative expenditure 16,600
Drawings 9,000
£239,010 £239,010

Required:
(a) Prepare a corrected trial balance as at 31 March 20X8.
After the preparation of the above trial balance, but before the completion of the final
accounts for the year ended 31 March 20X8, the following discoveries were made:
(i) The correct valuation of the stock in trade at 1 April 20X7 is £12,000; apparently some
stock lists had been mislaid.
(ii ) A credit note for £210 has now been received from J Hardwell Limited; this relates to
goods returned in December 20X7 by Thomas Smith. However, up to now J Hardwell

384
BA10_C32.qxd 16/12/04 1:17 pm Page 385

Chapter 32 l Errors not affecting trial balance agreement

Limited had not accepted that the goods were not of merchantable quality and Thomas
Smith’s accounting records did not record the return of the goods.
(iii) Trade sample goods were sent to John Grey in February 20X8. These were free samples,
but were charged wrongly at £1,000 to John Grey. A credit note is now being prepared
to rectify the error.
(iv) In March 20X8, Thomas Smith painted the inside walls of his stockroom using materials
costing £150 which were included in the purchases figure in the above trial balance.
Thomas Smith estimates that he saved £800 by doing all the painting himself.
(b) Prepare the journal entries necessary to amend the accounts for the above discoveries. Note:
narratives are required.
(Association of Accounting Technicians)

You can find a range of additional self-test questions, as well as material to help you with
your studies, on the website that accompanies this book at www.pearsoned.co.uk/wood

385