IGCSE Accounting 0452 - 3.2 Correction of Errors

Objective: Correct errors by means of journal entries

Understanding Errors in Accounting

Errors are mistakes made during the recording of financial transactions. These errors can affect the accuracy of the financial statements. It's crucial to identify and correct these errors to ensure reliable financial reporting.

Common types of errors include:

• Omissions: A transaction is not recorded at all.
• Duplications: A transaction is recorded more than once.
• Incorrect amounts: The wrong amount is recorded for a transaction.
• Incorrect accounts: A transaction is recorded in the wrong account.

Methods of Correcting Errors

The primary method for correcting errors is through the use of corrected journal entries.

A corrected journal entry is made to reverse the original incorrect entry and then record the correct entry.

Correcting Different Types of Errors

1. Error of Omission

An omission occurs when a transaction is not recorded at all. To correct this, a new journal entry is made.

Example: Rent of $500 was not recorded in the ledger.

Corrected Journal Entry:

Date	Account Debited	Account Credited	Debit	Credit
(Date of Rent)	Rent Expense	(Creditor/Cash)	$500	$500

2. Error of Duplication

A duplication occurs when a transaction is recorded twice. To correct this, a credit entry is made to reverse the duplicate entry, followed by the correct debit entry.

Example: A $200 sale was mistakenly recorded twice.

Corrected Journal Entry:

Date	Account Debited	Account Credited	Debit	Credit
(Date of Duplicate Entry)	Sales Revenue	(Cash/Debtors)	$200	$200
(Date of Original Entry)	Sales Revenue	(Cash/Debtors)	$200	$200

3. Error of Incorrect Amount

An error of incorrect amount occurs when the wrong amount is recorded. To correct this, the incorrect entry is reversed, and the correct entry is made.

Example: A bill of $100 was recorded as $10.

Corrected Journal Entry:

Date	Account Debited	Account Credited	Debit	Credit
(Date of Incorrect Entry)	(Relevant Account)	(Relevant Account)	$10	$10
(Date of Correct Entry)	(Relevant Account)	(Relevant Account)	$100	$100

4. Error of Incorrect Accounts

An error of incorrect accounts occurs when a transaction is recorded in the wrong account. To correct this, the incorrect entry is reversed, and the correct entry is made.

Example: A payment to the supplier was recorded as an expense instead of a decrease in inventory.

Corrected Journal Entry:

Date	Account Debited	Account Credited	Debit	Credit
(Date of Incorrect Entry)	(Incorrect Account)	(Correct Account)	$Amount	$Amount
(Date of Correct Entry)	(Correct Account)	(Relevant Account)	$Amount	$Amount

Important Considerations

When correcting errors, it's important to:

• Always use a corrected journal entry.
• Clearly state the nature of the error in the journal entry.
• Ensure the corrected entries are properly documented.