Errors That You May Commit When Recording Business Transactions
As a business owner, do you know how you should record the accounting entries (Also see Vital Elements in Bookkeeping)? Understanding the correct way of posting the entries in your books of accounts is crucial as this prevents your records from getting messy. Apart from recording the transactions correctly, the accuracy of the figures is important too. If you are too busy to do the bookkeeping tasks all by yourself, hiring a bookkeeping firm in Singapore will be a good choice because you may end up making your books chaotic if you record the transactions in a hurry without knowing the right way to record them.
When one records and posts the entries, he may commit errors (Also see How to rectify Common Accounting Errors that Owners Make). There are two types of errors, which are clerical errors and error of principle. Clerical errors are the errors that one may commit in the ordinary course of posting a transaction into the ledger or recording it in a journal. As against, errors of principle refer to the errors that arise because the way one records the transaction does not comply with the accounting principle or accounting convention.
There are three types of a clerical error, which are the error of commission, the error of omission, as well as compensating error. In this article, we are going to focus on the error of commission and the error of omission.
Error of Commission
The error of commission refers to the mistakes that occur when one records the transactions wrongly in the books of accounts (Also see Poor Bookkeeping Practices You Should Avoid). It happens when one entered an incorrect amount into the subsidiary books or posted the wrong amount in the ledger. The error of commission also takes place if one has posted an entry for twice, posted a sum on the wrong side, carried an incorrect amount from one page to another, or if he did not balance the account correctly.
Error of Omission
On the other hand, the error of omission happens when one did not record a transaction in the subsidiary books or did not post it into the ledger, whether in part or entirely. As a result, the transaction will not show up in the books of accounts.
There are two types of error of omission, which are complete omission and partial omission. The former will happen when one did not record a transaction in the journal (Also see Accounting Journal Entries) and thus, did not post it into the ledger. On the contrary, the latter refers to a situation where one has recorded the transaction in the journal, but he did not record that amount in the ledger. The first situation will not cause disagreement in the trial balance as the omission will bring an impact on the debit side as well as the credit side. However, as the second situation will only affect one account, the trial balance will not be tally.