1 Transposition error
Transposition error is interchanging places of two digits such as 172 recorded 127. It results in equal debit and credit; therefore, this error is not detected in trial balance.
2 Error of Omission
Transaction is not recorded or posted at all or only debit or credit side is omitted.
3 Error of Principle
Error of principle is incurred in case of divergence from Accounting Standards and GAAP (Generally Accepted Accounting Principles).
Classifying repair & maintenance expenditure as capital expenditure and debited to non-current asset account rather than recognized as revenue expenditure and debited to profit & loss.
Wrongly, debited cashbook for cash paid to supplier and credited trade payable. To correct this error cashbook needs to be credited and trade payables needs to be debited by x2 of the amount subject to error.
4 Error of Commission
Posting telephone expense to electricity expense. In this case, telephone expense is posted to wrong title of account. However, it does not result in divergence from Accounting Standards or GAAP, as revenue expenditure is still treated as revenue expenditure. It results in one title of account being understated and other title of account being overstated by the same amount. Therefore, this error is not detected in trial balance.
In this case, telephone expense account is understated and electricity bill account is overstated.
In addition, error of commission is casting wrong totals from daybooks and as a result posting entry with wrong amount. It can result in both understatement and overstatement of relevant account. It effects both debit and credit entries; therefore, this error is not detected in trial balance.
5 Compensating Error
Recording of wrong amount in one account is offset by recording wrong value in another account.
Understatement of sales is offset by understatement of purchases by the same amount.
Understatement of sales is offset by overstatement of commission income by the same amount.
It effects both debit and credit entries; therefore, this error is not identified in trial balance.
In MCQs, you will be given errors and required to identify the type of error.
Or you will be given the error and required to identify correcting entry for that error.