Paper F3: Financial accounting (International)
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Types of error which affect the balancing of the trial balance are as follows:
A transaction might be recorded with a debit entry in one account, but the
corresponding credit entry is omitted. Similarly, a transaction might be recorded
with a credit entry in one account, but the corresponding debit entry is omitted.
For example a payment might be recorded as a credit entry in the cash book but
omitted from the payables ledger control account.
There could be a transposition error in one account. For example, the debit entry
might be $1,234 and the corresponding credit entry might be $1,324. One of the
entries must be incorrect.
A transaction might be recorded as a debit entry in two accounts, instead of as a
debit entry in one account and a credit entry in the other account. For example,
rental income might be recorded as a debit entry in the cash book and, in error,
as a debit entry in the rental expense account.
Similarly, a transaction might be recorded as a credit entry in two accounts,
instead of being a debit entry in one account and a credit entry in the other. For
example, discounts allowed might be recorded as a credit entry in the
receivables ledger control account and, in error, as a credit entry in the discounts
received account.
The cash book is often used as both a book of prime entry and as a main ledger
account (‘cash’ or ‘bank’). In a manual accounting system, the total of cash
receipts or cash payments on a page of the cash book is added up and the total
amount of cash received or cash paid is then ‘posted’ to the corresponding main
ledger account (such as receivables ledger control account or payables ledger
control account). When a total column in the cash book is added up incorrectly,
the total is said to be ‘undercast’ if it is too low or ‘overcast’ if it is too high.
Arithmetical errors that result in an undercast or overcast results in the balance
on an account being too high or too low. When a trial balance is extracted, totals
debits and total credits will therefore be different.
1.4 Errors not highlighted by the extraction of a trial balance
A trial balance is only useful in helping to identify errors where the debit and credit
entries in the main ledger accounts do not match. It does not help with the
identification of errors where there has not been a mis-match between debit and
credit entries.
There are some types of error that do not result in a difference between total debit
and total credit entries and therefore do not affect the balancing of the trial balance.
For example:
A transaction might have been omitted entirely from the main ledger, with no
debit entry and no credit entry.
Transactions might be recorded in the wrong account. For example, the cost of
repairing a machine might be recorded incorrectly as a debit in the machinery at
cost account instead of recording it as a debit in the machine repairs account.
The amount of the debit entry is correct; the error is to post the transaction to the
wrong account.
There might be compensating errors. For example one error might result in
debits exceeding credits by $2,000 but anther error might result in credits
exceeding debits by $2,000. If this happens, the errors will ‘cancel each other out’