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    Correction of Errors

    Uploaded by

    Nerissa Bulagsak
    This document discusses types of accounting errors and how to correct them. It outlines errors that affect the balance sheet, such as incorrectly debiting a capital asset as an expense. It also outlines errors that affect both the balance sheet and income statement, like overstating or understating inventory. The document defines two types of errors: counterbalancing errors, which correct themselves in the next period, and non-counterbalancing errors, which require a journal entry to correct. Examples of each type of error are provided.

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    Download as PDF, TXT or read online from Scribd

    Correction of Errors

    Uploaded by

    Nerissa Bulagsak
    179 views2 pages
    This document discusses types of accounting errors and how to correct them. It outlines errors that affect the balance sheet, such as incorrectly debiting a capital asset as an expense. It also outlines errors that affect both the balance sheet and income statement, like overstating or understating inventory. The document defines two types of errors: counterbalancing errors, which correct themselves in the next period, and non-counterbalancing errors, which require a journal entry to correct. Examples of each type of error are provided.

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    This document discusses types of accounting errors and how to correct them. It outlines errors that affect the balance sheet, such as incorrectly debiting a capital asset as an expense. It also outlines errors that affect both the balance sheet and income statement, like overstating or understating inventory. The document defines two types of errors: counterbalancing errors, which correct themselves in the next period, and non-counterbalancing errors, which require a journal entry to correct. Examples of each type of error are provided.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    179 views2 pages

    Correction of Errors

    Uploaded by

    Nerissa Bulagsak
    This document discusses types of accounting errors and how to correct them. It outlines errors that affect the balance sheet, such as incorrectly debiting a capital asset as an expense. It also outlines errors that affect both the balance sheet and income statement, like overstating or understating inventory. The document defines two types of errors: counterbalancing errors, which correct themselves in the next period, and non-counterbalancing errors, which require a journal entry to correct. Examples of each type of error are provided.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    CORRECTION OF ERRORS  Accruals & Deferrals (Failure to

    record adjustments)
     Assets (Debiting a capitalizable
     The presence of error in the recorded
    assets as nondepreciable assets or as
    accounting data will have an effect in the
    an expense)
    measurement, determination, and
     Revenues (Crediting revenues as
    evaluation of performance and financial
    some other forms of accounts with
    status of an entity.
    credit balance)
     When errors are detected, an accountant
    should be able to analyze these errors in
    order to know what appropriate action
    should be taken under the problem at Types of Errors Affecting Both BS
    hand. and IS
     Errors can be discovered during the  Counterbalancing Error
    accounting process itself or during the  Non-counterbalancing Eroor
    audit process.

    COUNTERBALANCING ERRORS
    CURRENT PERIOD ERRORS
    Counterbalancing Errors are those which
    Statement of Financial Position when not detected within the subsequent
     Some errors made during the recording financial year in which the errors are
    process can only affect balance sheet committed, are automatically corrected as a
    accounts. natural part of the account process.
     When these errors are detected, entries
    can simply be made to correct the A correcting journal entry is necessary for
    account balances. Since they are real any counterbalancing error that is detected
    accounts, there are no implications on before it has counterbalanced.
    accounts that close at the end of an
    accounting period.  Inventories (Overstatement and
    Understatement)
    Notes Receivable debited as Accounts  Accruals and Deferrals (Omission or
    Payable (Reclassification) failure to adjust)
    Interest payable credited as salaries *Cash Basis, off-sets, RE of Year 2 is correct
    payable (Reclassification)

    Statement of Income
     Although reclassification is required,
    these kinds of errors do not affect the
    amount of profit for the period in
    consideration
     Misclassification of items
    Interest Revenue erroneously included
    as sales revenue
    Interest income being credited as
    dividend income
     However, if these misclassifications Non-counterbalancing Errors are errors
    happened in a previous accounting that are not automatically corrected or offset
    period would have to be corrected in the next accounting period.
    through item reclassification.
    A correcting journal entry is necessary for a
    PRIOR PERIOD ERRORS non-counterbalancing error.
     Most errors however, affect both BS and
    IS items  Erroneous Capital Expenditures
     Inventory (Overstatement or  Erroneous Revenue Recognition
    Understatement)  Omission of Depreciation Chargers

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