Explain errors of principle and give two examples with measures to rectify them.
Answers
There are various stages at which errors may occur. Therefore, it is very important to the accountants and bookkeepers to identify such errors and rectify them.
Stages of errors
At the Stage of Recording the Transactions in subsidiary books
At the stage of posting the entries in ledger like a partial or complete omission, wrong totaling of accounts or posting on the wrong side etc.
The stage of balancing the ledger accounts like wrong totaling of accounts or wrong balancing of accounts.
At the stage of preparing the trial balance like taking the wrong account, taking the wrong amount etc.
Learn more about Rectification of Errors here in detail.
Types of errors
There are following types of errors
Errors of principle, and
Clerical Errors
Errors of Omission
Errors of Commission
Compensating Errors.
Errors of Principle
As per double entry system, every debit has its corresponding credit. The accounts will be arithmetically correct only if, there is the same amount at both debit and credit sides. The error of principle means recording the transaction violating the accounting policies and procedures.
For Example: treating the purchase of an asset as an expense, this is an error of principle. An error of principles is more likely to be committed when an accountant does not have a good understanding of accounting concepts and terms used in accounting.