Types of Errors
Step 12: Identifying and correcting mismatches in the books to ensure the integrity of financial data.
Error of Omission
Impact: Missing Records
Occurs when a transaction is completely or partially left out of the books of account.
Error of Commission
Impact: Mathematical Inaccuracy
Errors in recording, posting, or totaling—such as writing the wrong amount or recording it in the wrong ledger.
Error of Principle
Impact: Accounting Violation
Occurs when a transaction is recorded in violation of accounting principles (e.g., treating asset purchase as an expense).
Compensating Error
Impact: Hidden Imbalance
When the effect of one error is neutralized or balanced out by another error elsewhere in the books.
Finding errors is often harder than recording the transactions themselves. A balanced Trial Balance doesn't always mean your books are perfect; Errors of Principle and Compensating Errors can hide in plain sight!