Types of errors - Omission, commission, and principle

Learning Outcomes

After reading this article, you will be able to identify and explain the main types of accounting errors found in bookkeeping: errors of omission, commission, and principle. You will be able to distinguish between these errors, understand their impact on the trial balance, and apply clear approaches to rectify each. You will also know the relevant key terms required for the ACCA FA1 exam.

ACCA Recording Financial Transactions (FA1) Syllabus

For ACCA Recording Financial Transactions (FA1), you are required to understand how errors can occur in accounting, how they affect the trial balance, and how to correct them. In particular, the syllabus for this topic covers:

• The different types of errors in financial records (omission, commission, principle)
• How each error impacts the trial balance and the accuracy of accounts
• Identifying errors that are revealed by the trial balance, and those that are not
• The procedures for correcting various types of errors using journals
• The importance of maintaining accurate accounting records

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which type of error occurs when a transaction is completely left out of the accounts?
   1. Error of commission
   2. Error of omission
   3. Error of principle
   4. Compensating error
2. If a rent expense is posted to the electricity account, which error is this?
   1. Error of omission
   2. Error of principle
   3. Error of commission
   4. Error of original entry

3. True or false? All errors will cause the trial balance not to agree.

4. Briefly explain the difference between an error of commission and an error of principle.

Introduction

Accurate record keeping is critical in accounting. However, mistakes can occur during the recording and posting of transactions. Not all errors are easily spotted—some cause the trial balance to disagree, while others will not affect it. Three of the most frequent types are the errors of omission, commission, and principle. Understanding the differences between these errors and knowing how to identify and correct them is essential for exam success and for ensuring reliable financial records.

Key Term: error of omission
The complete or partial failure to record a transaction in the accounting records.

Key Term: error of commission
Recording a transaction in the correct type of account but in the wrong individual account of the same type.

Key Term: error of principle
Recording a transaction in an incorrect class of account, breaking a basic accounting rule.

Main Types of Errors

Errors of Omission

An error of omission takes place when all or part of a transaction is not entered into the accounting system. This could be as simple as failing to record a sales invoice, or as subtle as leaving out one side of a transaction.

If both debit and credit entries are missing, the trial balance will still appear to balance.

Errors of Commission

An error of commission occurs when the transaction is posted to the correct category (such as expenses) but in the wrong account. For instance, posting a payment to the telephone expenses account instead of utilities. The transaction is included, but the detail is incorrect.

The trial balance will still balance with this type of error.

Errors of Principle

An error of principle means the transaction is entered in a fundamentally incorrect class of account. This is more serious, as it violates accounting principles. A typical example is recording the purchase of office equipment as an expense instead of as an asset. Although the debit and credit entries may balance, the fundamental classification is wrong.

The trial balance will still balance if the debits and credits have been posted.

Worked Example 1.1

A business purchases computer equipment for $1,500 but records the transaction as an expense instead of an asset. What type of error is this?

Answer:
This is an error of principle. The purchase should have been recorded as a non-current asset, but it was entered as an expense.

Worked Example 1.2

A cash receipt for $200 from a customer is posted to the wrong customer account, but to the correct side of the receivables ledger. What type of error has occurred?

Answer:
This is an error of commission. The total in the books is correct, but the detail is incorrect because it is in the wrong individual account.

Worked Example 1.3

A supplier invoice for $650 is left unrecorded entirely in both the purchases and payables accounts. How would you classify this error, and what is its effect on the trial balance?

Answer:
This is an error of omission. The trial balance will still balance because both the debit and credit were omitted.

Exam Warning

Watch for scenarios where the trial balance still balances but errors exist. Errors of omission, commission, and principle will not cause an imbalance and require careful review to detect.

Summary

Errors in bookkeeping do not always produce an obvious discrepancy. Errors of omission, commission, and principle are not revealed by extracting a trial balance, as both sides of the double entry are either completed or equally omitted. It is essential to understand the definitions and be able to recognise examples of each for both revision and the exam.

Key Point Checklist

This article has covered the following key knowledge points:

• Define errors of omission, commission, and principle
• Recognise the effect of these errors on the trial balance
• Distinguish between an error of commission and an error of principle
• Identify examples of each error type
• Understand that these errors do not cause an imbalance in the trial balance

Key Terms and Concepts

• error of omission
• error of commission
• error of principle