Bookkeepers make mistakes, and the trial balance finds only some of them. Others leave the debit and credit totals equal and stay hidden until someone checks. This topic names the main types of error, shows which ones the trial balance reveals, explains how to correct each with a journal entry, and shows how to work out the effect of an error on profit.
Error correction is one of the highest-scoring skills in the paper. A full question asking for correcting journals appeared in 10 of the 20 diets reviewed, usually for 10 to 16 marks, often with a statement of corrected profit, and Section A has one or two items a diet. Read the topics on the trial balance and control accounts first.
The next topic covers suspense accounts, which hold a trial balance difference until the errors are corrected.
In 30 seconds
Six errors to know: Transposition (digits reversed), Original entry (the wrong amount in both accounts), Compensating (equal errors on opposite sides), Omission, Commission (the wrong account of the same type) and Principle (the wrong type of account). The trial balance finds only errors that make debits differ from credits. To correct one, compare What was recorded with What should have been recorded and journalise the difference.
Capital items charged as expenses understate profit, and the reverse overstates it, so adjust the draft profit and allow for depreciation.
Types of error
Errors arise because people make mistakes. They are introduced as four broad categories, but six are listed.
| Error | Meaning | Example | Trial balance |
|---|---|---|---|
| Transposition | Digits written the wrong way round | ₦9,700 recorded as ₦7,900 | Shows if on one side only |
| Original entry | The wrong amount is entered in both the debit and the credit | A purchase of ₦1,560 recorded as ₦1,650 in purchases and in payables | Hidden |
| Compensating | Two errors of equal amount on opposite sides cancel out | Sales over-added by ₦2,000 and purchases over-added by ₦2,000 | Hidden |
| Omission | A transaction left out of the ledger altogether, or from one account only | An invoice never recorded | Hidden if left out entirely. Shows if one side is missing |
| Commission | The correct amount is posted to the wrong account of the same type | A telephone expense posted to electricity | Hidden |
| Principle | An entry is made in the wrong type of account | A machine bought and debited to repairs | Hidden |
An error of principle matters because it distorts depreciation, running costs, profit and the statement of assets. A commonly quoted “compensating error” example (₦1,980 received from a customer posted as ₦1,890 in the receivables control account) is really a transposition error in one account. A true compensating error needs two separate errors that offset each other.
Background: examiners also set the Complete reversal of entries, where the debit and credit are posted to the right accounts but on the wrong sides.
Errors the trial balance does and does not show
A trial balance helps only where the debit and credit entries do not match. The errors that Affect the totals are:
- a debit with no credit, or the reverse, such as a payment credited in the cash book but left out of the payables control account;
- a transposition in one account, such as a debit of ₦1,234 and a credit of ₦1,324;
- a transaction recorded as a debit in two accounts, or a credit in two accounts;
- a casting error, which gives a wrong balance on one side of an account.
Background: a balance extracted wrongly, left out of the trial balance, or listed in the wrong column also changes the totals. The errors that Do not affect the totals are:
- a transaction omitted entirely, with no debit and no credit;
- the wrong figure entered in both accounts (original entry);
- an entry in the wrong account, such as a machine repair debited to machinery at cost (commission or principle); and
- compensating errors.
Correcting errors
Errors are corrected when found. A transaction omitted altogether is journalised and posted. An entry made wrongly is corrected by a journal entry posted to the relevant accounts. To correct properly you must identify the error, know what the correct entry should have been, and work out the double entry adjustment.
A helpful method is to draw two memorandum T accounts for each account affected, one for What was recorded and one for What should have been recorded. The difference in each account is the correction.
Wrong amount. A sales day book total of ₦1,800 was posted as ₦1,080. Receivables should be ₦1,800 and was ₦1,080, so debit it with ₦720. Sales should be ₦1,800 and was ₦1,080, so credit it with ₦720. The correction is Dr Receivables, Cr Sales ₦720. The difference in this example is 1,800 − 1,080 = 720, not ₦920.
Wrong type of account. A repair cost of ₦15,000 was debited to machinery at cost. It should be in machine repairs. The correction is Dr Machine repairs, Cr Machinery at cost ₦15,000.
Wrong side. Rental income of ₦21,800 was credited to rental expense. The expense account has a credit of ₦21,800 where there should be none, and rental income has nothing. The correction is Dr Rental expense, Cr Rental income ₦21,800.
Wrong account on one side. A sale of ₦515,000 was recorded expecting no discount. The customer took a 2.5% discount (₦20,600) and the business adjusted receivables correctly but debited discounts received for the other side. The correction is Dr Revenue, Cr Discounts received ₦20,600.
The effect of errors on profit
Unless they are corrected, errors change the reported profit. The usual question involves capital expenditure recorded as revenue expenditure, the reverse, or a capital item recorded at a wrong amount. To adjust the draft profit, Add back any cost wrongly charged as an expense and Deduct the depreciation the asset should have attracted. Take equipment bought for ₦360,000 and recorded as ₦36,000.
The draft profit of ₦2,560,000 includes depreciation of 10%, ₦3,600. Add back the wrong depreciation: 2,560,000 + 3,600 = 2,563,600. Deduct the correct charge, 10% of ₦360,000 = ₦36,000. Corrected profit = ₦2,527,600. In the reverse case, a repair of ₦60,000 wrongly capitalised as equipment at 20% depreciation, profit is reduced by the repair and increased by the wrong depreciation.
The ideas in more depth
Journal first. Every correction is a journal entry with a narration, then posted. One error, several accounts. A wrong-amount error needs only the difference, not a reversal and a re-entry. Profit versus cash. A correction between two expense accounts does not change profit. A correction between an expense and an asset does. Depreciation follows the asset. When an item moves between expense and asset, depreciation moves with it.
Worked example: Jos Traders
Scenario. Draft profit is ₦1,640,000. Errors found:
- (1) a computer of ₦180,000 was debited to repairs, and equipment is depreciated at 20% on cost
- (2) an electricity bill of ₦45,000 was debited to rent
- (3) a sale of ₦72,000 to Kemi was entered as ₦27,000 in sales and in receivables
- (4) a cash sale of ₦30,000 was left out of the books
- (5) the owner’s drawings of ₦25,000 were debited to wages
Required: journals and corrected profit.
- Principle. Dr Computers 180,000, Cr Repairs 180,000.
- Commission. Dr Electricity 45,000, Cr Rent 45,000.
- Original entry. Dr Receivables 45,000, Cr Sales 45,000 (72,000 − 27,000).
- Omission. Dr Bank 30,000, Cr Sales 30,000.
- Principle. Dr Drawings 25,000, Cr Wages 25,000.
- Profit. Draft 1,640,000.
Add back repairs 180,000 and deduct depreciation 20% × 180,000 = 36,000, net +144,000.
Add sales 45,000 and 30,000.
Add back wages 25,000.
Item 2 has no effect.
Corrected profit = 1,640,000 + 144,000 + 45,000 + 30,000 + 25,000 = ₦1,884,000.
Common mistakes in the exam
- Reversing the original entry and re-entering the whole amount. Journal the difference only.
- Forgetting depreciation when an asset is moved in or out of expenses.
- Adjusting profit for errors between two expense accounts.
- Mixing commission and principle. Same type of account is commission. Different type is principle.
- Leaving out the narration.
Quick revision
- Six errors: transposition, original entry, compensating, omission, commission, principle.
- Trial balance misses omission (complete), original entry, commission, principle, compensating and reversal.
- Correct by comparing recorded with correct, then journalise the difference.
- Add back wrongly charged costs. Deduct the depreciation the asset should carry.
Practice questions
These are original questions in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one first.
Section A style: multiple choice
Question 1. Posting an electricity bill to the telephone account is an error of:
- Principle
- Omission
- Commission
- Original entry
Show the answer
C. Same type of account.
Question 2. A machine bought for cash and debited to repairs is an error of:
- Commission
- Transposition
- Principle
- Compensating
Show the answer
C. Capital expenditure in a revenue account.
Question 3. ₦5,400 recorded as ₦4,500 is a:
- Principle error
- Transposition error
- Omission
- Commission
Show the answer
B. The digits are reversed.
Question 4. Which error would NOT affect the trial balance?
- A debit with no credit
- A transaction omitted entirely
- A casting error
- A debit posted twice
Show the answer
B. A transaction omitted entirely leaves out both the debit and the credit, so the trial balance still balances.
Question 5. Which error WOULD affect the trial balance?
- Compensating
- Commission
- Original entry
- A payment credited to bank and not debited anywhere
Show the answer
D. A one-sided entry leaves a debit or a credit without its pair, so the trial balance does not balance.
Question 6. A sale of ₦90,000 was recorded as ₦9,000 in sales and receivables. The correction is:
- Dr Sales, Cr Receivables ₦81,000
- Dr Receivables, Cr Sales ₦90,000
- Dr Bank, Cr Sales ₦81,000
- Dr Receivables, Cr Sales ₦81,000
Show the answer
D. 90,000 − 9,000 = 81,000.
Question 7. In an error of original entry:
- An entry is left out
- The wrong amount is in both accounts
- Debit and credit are swapped
- The wrong class of account is used
Show the answer
B. In an error of original entry the wrong amount is posted to both accounts, so debits still equal credits.
Question 8. A compensating error is:
- Two equal errors on opposite sides
- An omitted sale
- A wrong account of the same type
- A reversed entry
Show the answer
A. Two errors of equal amount on opposite sides cancel out, so the trial balance still agrees.
Question 9. Capital expenditure recorded as an expense:
- Understates profit
- Overstates profit
- Has no effect
- Overstates assets
Show the answer
A. The cost should be spread through depreciation.
Question 10. Rent received was credited to rent paid. The correction is:
- Dr Rent received, Cr Rent paid
- Dr Bank, Cr Rent received
- Dr Rent paid, Cr Rent received
- No correction
Show the answer
C. Rent received should have been credited to rent received. Debit rent paid to remove the wrong credit and credit rent received.
Section B style: written questions
Question 11 (10 marks). (a) Define transposition, original entry, commission and principle errors, with an example of each. (4 marks) (b) State TWO errors that affect the trial balance and TWO that do not. (4 marks) (c) State how an error is corrected. (2 marks)
Question 12 (20 marks). Draft profit is ₦2,950,000. Errors: (i) furniture of ₦120,000 was debited to purchases (furniture is depreciated at 10%); (ii) a payment of ₦38,000 to Hauwa was debited to Husseina’s account; (iii) a credit sale of ₦96,000 was entered as ₦69,000 in sales and receivables; (iv) vehicle repairs of ₦52,000 were debited to motor vehicles (depreciated at 20%); (v) rent of ₦44,000 paid was not recorded.
(a) Name the type of each error. (5 marks) (b) Prepare journal entries with narrations. (10 marks) (c) Prepare a statement of corrected profit. (5 marks)
A further written question
Question 13 (10 marks). (i) A sale of ₦210,000 to Yusuf was debited to his brother Yakubu’s account. (ii) A machine of ₦640,000 was debited to purchases (depreciated at 10%). (iii) An invoice of ₦48,000 was entered as ₦84,000 in sales and receivables. Prepare the journals (6 marks) and state the net effect on profit (4 marks).
Model answers
Show the model answer to Question 11
(a) Transposition: digits reversed, ₦9,700 as ₦7,900. Original entry: the wrong amount in both accounts, a purchase of ₦1,560 entered as ₦1,650. Commission: the right amount in the wrong account of the same type, telephone posted to electricity. Principle: an entry in the wrong type of account, a machine posted to repairs. (b) Affect: a debit with no credit; a casting error.
Do not: omission of a whole transaction; commission (or principle, original entry, compensating). (c) By a journal entry that fixes the difference, posted to the ledger.
Show the model answer to Question 12
(a) (i) Principle. (ii) Commission. (iii) Original entry. (iv) Principle. (v) Omission.
(b) (i) Dr Furniture 120,000, Cr Purchases 120,000. (ii) Dr Hauwa 38,000, Cr Husseina 38,000. (iii) Dr Receivables 27,000, Cr Sales 27,000. (iv) Dr Motor repairs 52,000, Cr Motor vehicles 52,000. (v) Dr Rent 44,000, Cr Bank 44,000.
(c)
- Draft 2,950,000.
- (i) +120,000 − depreciation 12,000 = +108,000.
- (iii) +27,000.
- (iv) −52,000 + wrong depreciation 10,400 = −41,600.
- (v) −44,000.
- Corrected profit = ₦2,999,400.
Show the model answer to Question 13
(i) Dr Yusuf 210,000, Cr Yakubu 210,000. (ii) Dr Machinery 640,000, Cr Purchases 640,000. (iii) Dr Sales 36,000, Cr Receivables 36,000. Effect on profit: (ii) +640,000 − 64,000 = +576,000; (iii) −36,000. Net +₦540,000.
Pathfinder on Correction of errors in the books
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
From the previous syllabus. A trial balance difference placed in a suspense account, with eight errors. Asks for the correcting journals (12 marks), the suspense account (4 marks) and a statement adjusting net profit (4 marks).
Revise first: Correcting errors
From the previous syllabus. Asks for journal entries to correct errors (5 marks) and a corrected trial balance (11 marks). Parts (a) and (b) belong to the trial balance topic.
Revise first: Correcting errors
From the previous syllabus. A trial balance with a credit excess of ₦20,500. Asks for the journal entries and the suspense account.
Revise first: Correcting errors
From the previous syllabus. Errors found after the profit was calculated. Asks for correcting journals (10 marks), the suspense account (3 marks) and a statement of adjusted profit (7 marks).
Revise first: The effect of errors on profit
From the previous syllabus. A trial balance that fails to agree by ₦8,204,000 debit excess. Asks for the correcting journals (10 marks) and the suspense account (7 marks).
Revise first: Correcting errors
From the previous syllabus. A trial balance with credits exceeding debits by ₦1,030,000. Asks for the correcting journals (15 marks) and the suspense account (5 marks).
Revise first: Correcting errors
From the previous syllabus. Errors by an inexperienced bookkeeper. Asks for the correcting journals (11 marks) and the suspense account (4 marks).
Revise first: Correcting errors
From the previous syllabus. A suspense balance of ₦5,500,000 and five errors. Asks for journal entries to rectify them.
Revise first: Correcting errors
From the previous syllabus. Asks for a trial balance and the suspense balance (6 marks), correcting journals with narrations (10 marks) and the suspense account (4 marks).
Revise first: Correcting errors
From the previous syllabus. A trial balance with a debit excess of ₦863,000 and fourteen errors. Asks for the correcting journals (7 marks) and the suspense account (8 marks).
Revise first: Correcting errors
From the previous syllabus. Question 9 asks for the journal that corrects a supplier invoice credited to the supplier and wrongly debited to sales. Questions 10 and 11 ask for the correction and effects of a non-current asset item debited to purchases.
Revise first: Correcting errors
One or two items a diet ask which error leaves the trial balance unchanged, the correcting entry for a stated error, or the effect on profit. Check Section A of every diet you practise.
Revise first: Types of error
Source: ICAN Pathfinder, Financial Accounting. Diets covered: November Diet, 2014, May Diet, 2015, May Diet, 2016, November Diet, 2016, May Diet, 2017, May Diet, 2018, November Diet, 2018, November Diet, 2020, May Diet, 2021, May Diet, 2022 and November Diet, 2023 (all previous syllabus). Diets before November 2014, and November Diet, 2024 onwards, are not covered here.
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