Bookkeeping basics

Correction of errors

Correction = the right entry − the entry made.

Draft: not yet reviewed by a teacher

Why it exists

Errors are inevitable, but entries must not be erased: every change has to leave a trail. So an error is not deleted; it is corrected by a new journal entry with a narrative.

Key rules

Omission: the transaction was not recorded at all. Commission: the right type of account but the wrong account.
Principle: the wrong type of account, such as equipment bought but charged to repairs.
Original entry: the wrong amount on both sides. Complete reversal: the sides swapped. Compensating errors cancel each other out.
Step 1: what was recorded? Step 2: what should have been? Step 3: a journal for the difference.
A complete reversal takes twice the amount to correct: once to undo the wrong entry and once to make the right one.
Correcting an income or expense account changes profit; correcting between two statement of financial position accounts does not.

Examples

Draft profit is 48,000. Three errors are found:

A printer of 1,200 charged to repairs: Dr Office equipment 1,200, Cr Repairs 1,200 (profit +1,200)
A sale of 5,840 recorded as 5,480 on both sides: Dr Receivables 360, Cr Sales 360 (profit +360)
An electricity accrual of 380 left out: Dr Electricity 380, Cr Accruals 380 (profit −380)
Corrected profit: 48,000 + 1,200 + 360 − 380 = 49,180

Three corrections and profit

How it works

The six error types above keep debits equal to credits, so the trial balance cannot see them. Errors that leave the sides unequal create a difference, which sits in a suspense account for now.

For the effect on profit, look only at the lines of the correction that touch income or expenses.

Traps

Taught in the course

Key rules

Omission: the transaction was not recorded at all. Commission: the right type of account but the wrong account.

Principle: the wrong type of account, such as equipment bought but charged to repairs.

Original entry: the wrong amount on both sides. Complete reversal: the sides swapped. Compensating errors cancel each other out.

Step 1: what was recorded? Step 2: what should have been? Step 3: a journal for the difference.

A complete reversal takes twice the amount to correct: once to undo the wrong entry and once to make the right one.

Correcting an income or expense account changes profit; correcting between two statement of financial position accounts does not.