In accounting there are two types of error, one is "Errors of principle" & another is "Clerical Errors". Clerical errors can be farther divided in 3 categories, they are: "Errors of commission" , "Errors of omission" & "Compensating Errors". Continue reading to understand each of them...
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1. Errors of principle: Whenever any capital transaction missconceptually treated as revenue transaction or vice-versa , it will be called an error of principle. Example: Machinery purchased for office use, wrongly debited to "Purchase account", instead of "Machinery account".
2. Clerical Errors: All other errors, which are not errors of principle, are clerical errors. all three categories of clerical errors are given below:
2.1. Errors of commission: Whenever you choose incorrect accounts or write the incorrect amounts while recording an entry, it will be called error of commission. Example: Rs. 5000 receipt in cash wrongly taken in bank account, or wrongly entered as Rs. 500...
2.2. Errors in omission: Whenever you forgets to post one or more sides of an entry, it will be the Error of omission. Example: Cash paid to creditor, recorded in cash ledger but omitted in creditor's account.
2.3. Compensating Errors: It is the coincidental event when two or more errors occurred such a manner, where one compensating another(s), to match the debit and credit balance. Hence, it is tougher to be detected. Example: Commission paid Rs. 500 wrongly recorded as 5000 and in the same book of accounts salary paid Rs. 5000 wrongly recorded as Rs. 500.
