Error Of Principle
|Error Of Principle|
Error Of Principle - is one of the types of error appears when a registration for the appropriate amount is occurred on the appropriate side, but to the improper class of account. A transaction can be entered into a right account when it ought to be entered into a nominal account. This is contrary with an elementary rules of book-keeping. The most popular of this errors appears, when the buying or selling of an asset is considered as the buying or selling of goods for resale (Thompson Hosein, 2004, pp. 108-110).
Examples Errors Of Principle
Two examples of occurring Errors Of Principle are presented below:
- A typewriter was purchased from Business Supplies Ltd credit on 21 March. Purchases were debited and credited Business Supplies Ltd by the book-keeper. This error will not appeal to the agreement of the trial balance, for a debit entry has been caused with an analogous credit entry. Nonetheless, an error of principle has been caused because of the book-keeping's state rules that every time an asset is bought, the asset account which is a genuine account has to be debited along with the cost of the asset. A nominal account like the purchases account is applied only if items are bought for resale, or if raw materials are bought for using into the manufacture of goods (Whittington, 2012, p. 113).
- Another general error of principle appears when the selling of an asset is considered as the selling of goods. A credit entry is caused into the selling account instead of into the asset account. An old typewriter assess the value of the books at $350 and sold at that amount to A. Melville and he paid for it by cheque. The bank account was debited but the sales account was credited by the book-keeper. Even though the trial balance will still stability, an error of principle has been caused, because the genuine asset account should be credited every time when as asset is sold. A nominal account which is the sales account is only applied when goods are sold (Waddams, 2012, pp. 123-125).
Causes occurring Errors Of Principle
Errors can stem from (Mukherjee, Hanif, 2010, pp. 18-20):
- An inappropriate use of an accounting principle or technique;
- The use of wrong accounting principle;
- The failure to use the essential accounting principle.
Types of Errors
Errors, in the books of account, could be classify into two main types (Monte- Galanza, 2006, pp. 138-140):
- Accounting errors – these errors could be intentional or unintentional and could be divided into three classes:
- Errors of principle;
- Errors of omission;
- Error of commission.
- Systems errors – these errors are deficiencies in the inner control system and are categorized into:
- Compliance errors;
- Systems design error.
- Monte- Galanza R., (2006), A procedural Approach to Auditing Principles, REX Book Store, pp. 138-140.
- Mukherjee A., Hanif M., (2010), Modern Accountancy, Tata McGraw-Hill, Vol I, pp. 18-20.
- Thompson Hosein F., (2004), Principles of Accounts, Heinemann, pp. 108-110.
- Waddams S., (2012), Principle and Policy in Contract Law: Competing or Complementary Concepts?, Cambridge University Press, pp. 123-125.
- Whittington O., Delaney P., (2012), Wiley CPA Examination Review, CPA, Vol I, p. 113.
Author: Patrycja Wojcik