The 6 Bookkeeping errors you can afford to make

All bookkeepers, however accurate they try to be will make mistakes. This may not be down to the person entering the data as, for example, the figures on a receipt may be difficult to read, or figures have been missed completely. There are six types of errors that can be made that do not affect a trial balance. This article lists these and explains how to fix them.





The Error of Commission

The error of commission happens when a credit transaction is entered into the wrong customer or supplier account. For example, a supplier invoice for £120.00 is correctly entered into the purchases and VAT accounts but posted to Evan instead of Ewan.

In this instance you could correct the name in the purchases and VAT accounts, as this will not affect the amounts shown. However, you cannot simply "cross out" a whole entry in the supplier account. The way to deal with this is to say, "we should have credited Ewan’s account but we credited Evan’s account by mistake", therefore to transfer the entry from Evan to Ewan we should debit Evan and credit Ewan.



The Error of Principle

This is an error that is similar to that of Commission, but an entry has been posted to the wrong account in the nominal ledger. For example, the purchase of a computer which cost £1500 plus VAT has been posted to the computer maintenance account instead of the Computer (Asset) account. The VAT and the creditor’s entry are correct with the exception of the account name in the details.

The incorrect details can be altered but the entry in the nominal account must be transferred.



Error of Reversal

An error of reversal occurs when entries are posted to the wrong side of the accounts e.g. a cash sale is entered as a cash purchase. Instead of debiting the cash account and crediting the sales account, the entries made were to credit the cash account and debit the purchases account. There are numerous examples of where this can happen. For example, goods to the value of £125 including VAT are sold to P South. The amounts were posted to the correct accounts, but on the wrong side – this is what actually happened.

To correct this error, reverse the transaction.



Compensating error

A compensating error happens when two arithmetical errors are made that cancel each other out – for example, when balancing the account, both the sales and the purchases accounts are added up to be £10 more than they both are – the errors will cancel each other out, the trial balance will still balance but it will be at the wrong amount.

Corrections here are made by adding in the correct amount to the balance and re-balancing. In the following example, it is discovered that both accounts have been balanced and the balances brought down.

It is then discovered that each account has been balanced at £10 more than they should – each balance has to be reduced by the same amount. Note that if the accounts had been added up at £10 less, the correction would be entered so as to increase the balance and not to reduce the balance.



Aide memoire

The following might remind you of the six errors (in a slightly different order to those shown above)

Omission

Commission

Principle

Original entry

Reversal

Compensation

Or OCPORC.



To help you to understand how to make the corrections, look firstly at what did happen, then look at what should have happened and make the entries that will move you from the first position to the second.



Omission:

What did happen – nothing.

What should have happened - An entry into two or more accounts

How to get there – make the entry in the two or more accounts



Commission

What did happen – an entry in the wrong customer or supplier

What should have happened - An entry in the correct customer or supplier

How to get there – move the entry from the first customer or supplier into the correct customer or supplier



Principle

What did happen – an entry in the wrong nominal account

What should have happened? An entry in the correct nominal account

How to get there – transfer the entry from the first nominal account to the correct one.



Original entry

What did happen – the wrong figure was entered into two accounts

What should have happened - The correct entry should have been made into the same two accounts

How to get there – reverse the original entry and then put the correct one through



Reversal

What did happen – entries were made on the wrong side of two accounts

What should have happened - Entries should have been made on the correct side of two accounts

How to get there – reverse the original entries and make the correct ones



Compensating

What did happen – two accounts were balanced wrongly

What should have happened - The two accounts should have been balanced correctly

How to get there – calculate the difference and post this to the relevant side of both accounts.





This article has been put together by the distance learning organisation Start Learning who are experts in home study.



If you want to find out more about Essential Bookkeeping or many other distance learning courses please browse their website: Start Learning



Kerrana McAvoy

Academic Director – Start Learning

Start Learning