S6: ICT in Accounting

     Key unit competence: Correct errors in the account balances 

                                                      using QUICKBOOKS

Introductory Activity

Mr NGOGA Frank is an accountant in ABC Ltd. During the month of November 
2022, he recorded and posted the following transactions:
• Purchase of goods valued at 34,000 Frw by cash and he debited both 
   purchase and cash account.
• Taking goods worth 12,500 Frw for his own use and no entry has been 
   made
• The company sold the unused part of its land, the accountant debited 
    land and credited sales account.
• Cash banked FRw. 390 had been credited to the bank column and 
   debited to the cash column in the cashbook. 
• Cash drawings of FRw. 400 had been credited to the bank column of 
   the cashbook. 

In preparation of final report, some imbalances occurred. 
a) For each case, show whether the transaction is posted correctly
b) What do you think is the causes of the imbalance?

c) How can this be solved? 

Recording transactions, posting to the various accounts and extraction of list of 
account balances, it is possible for errors to be committed. Such errors may or 
may not affect the totals of the list of account balances. Recall that if the totals 
of the list of account balances equal, then this shows arithmetical accuracy in 
recording and posting of transactions.

Now it should be said, this does not mean non-existence of errors. It is possible 
for some errors not to affect the totals being equal for the list of account 
balances. Some errors can affect too the total of list of account balances. For 
those errors that affect the trial balance, quick books detect them before ending 

the recording process.

    6.1. The errors that do not affect the trial balance: Error of 

             omission, Error of Commission, Error of principle 

     Learning Activity 6.1.

After all transactions have been posted from the journal to the ledger, it is a 
good practice to prepare a trial balance. A trial balance is simply a listing of the 
ledger accounts along with their respective debit or credit balances for self                                                                                              check to determine that debits equal credits. 

Do you agree with the statement that if the debit side of trial balance is equal 
to the credit side of trial balance, there is no error committed in posting 

transactions? Discuss your answer.

In Accounting, errors refer to the common mistakes made while recording 
or posting accounting entries. These discrepancies are not fraudulent and 
generally unintentional. Errors that do not affect the List of account balances 
(trial balance) are the ones that totals of the list of account balances equal each 
other. 
However, on taking a close check on the balances and transactions posted, 
errors may have been made and therefore the balances shown on the list of 
account balances may be incorrect. Quick books cannot detect such errors.

The following errors will not affect the totals of list of account balances 

6.1.1. Error of omission 

Here, a transaction is completely omitted from the accounts and therefore the 
double entry is not made. 
For example, a sales invoice of Frw 400 is not posted in the sales journal 
therefore no entry is made in the debtor’s account and the sales account. That 
is both debit of Frw 400 in debtor’s account and credit of Frw 400 in the sales 

account. 

      

                         Figure 6.1. Error of omission. No entry is made. 

                                                                                                                                
       

            6.1.2. Error of Commission 
This error occurs when a transaction is posted to a wrong account but the 
account is of the correct class of account. Example: A credit sale to B. Kundwa 
is posted to B. Kunda’s account for an amount of Frw 5200. Instead of a debit 
to B. Kundwa account it is made to B. Kunda’s account and the corresponding 
credit in the sales account is correct. 
         

          

           

         6.1.3. Error of principle 

This type of error occurs when a transaction is posted to the wrong class of 
account. For example, Furniture purchased for FRw 423,000 cash is debited 
to the Furniture repairs account instead of debiting Furniture account, and the 

credit entry in the cashbook is correct. 

          

                                               Figure 6.5: Error of principle

The furniture is a non-current asset, and a furniture repair is an expense. 
Therefore a capital expenditure has been posted as revenue expenditure. 
To correct such an error, the amount in the wrong class of account has to be 

removed and transferred to the right class of account. 

        

                         Figure 6.6 To correct the error of principle 

Application Activity 6.1.

1. Explain;
a) Error of omission
b) Error of commission
c) Error of principle
2. The information bellow is from the books of Nelly. You are required to 
    record them in the journal of Nelly by correcting the errors committed.
a) Cash sales worth 29,000 FRW has never been recorded
b) Cash Payment of stationary has been recorded correcting in cash 
    and debited in salary account: 10,000 Frw
c) Furniture purchased for FRw 423,000 cash is debited to the 
     Furniture repairs account instead of debiting Furniture account, and 

    the credit entry in the cashbook is correct. 

6.2.The errors that do not affect the trial balance: Complete 

         reversal, Error of Original entry, Compensating Errors

      Learning Activity 6.2.

It is human nature to commit some errors especially in recording financial 
transactions. This causes the imbalance in some list of account and requires 

adjustment. Suggest some of such errors

6.2.1. Complete reversal 

A transaction is posted to the correct accounts but to the wrong sides of the 
accounts. That is a debit posted as a credit and a credit is posted as a debit in 
the right accounts. For example, discount received of FRw 7,120 is debited in 

the Discount received account and credited in the Creditor’s account.

             

                                              Figure 6.8 To correct error of complete reversal.

Notice: The account to be debited is debited twice and account to be credited 

                 is credited twice too. 

6.2.2. Error of Original entry 

Here a transaction is posted to the correct accounts but the amount posted is 
not correct. That is, it is either under/over stated. It is possible that the figure in 
the amount might be interchanged. Such is a transposition error. 

For example, cash received from a debtor of Frw 10,980 is posted to both 
debtor and cash account as Frw 10,890. The amounts were understated by 

Frw 90

         

                                              Figure 6.9 error of original entry

To correct this error, the amount understated or overstated is posted to these 
accounts so as to increase or reduce the amounts in the accounts to get the 

right amount. 

  For this example: 
                                                                 FRw                  FRw 
Debit Cash account                           90 

Credit Debtors’ account                                            90    

          

                                          Figure 6.10 To correct the error of original entry

         6.2.3. Compensating Errors 

These are errors that have the effect that tend to cancel out each other in 
amounts. That is, if the effect of one error is to understate the debits or credits 
then another error may take place to overstate the debits or credits by the same 
amount, hence canceling out each other.
 
For example, if the balance of bank account is Frw 435,000 but shown in the 

trial balance as FRw 345,500. 

     

         

                                  Figure 6.11 Company trial balance capital account overstated.

The balance C/D of capital is Frw 435,000 but it is recorded in the general 
journal as Frw 345,000. It has been under casted by Frw 89,500. This undercast 
affected both the capital account on its credit side and the debit side of cash 
account with the same amount.

Another error carried to the trial balance of furniture account amounting to FRw 

493,950 instead of Frw 404,450

           

       

Company trial balance. Furniture account overstated.

The balance of furniture account is Frw 404,450 but it is recorded in the 
general journal as Frw 493,950. It has been overstated by Frw 89,500. This 
overstatement affected both the furniture account on its debit side and the 
credit side of creditors account with the same amount.

The overall effect is nil on the debit side. Notice that the two accounts involved 
have debit balances. It is possible to have canceling effect even accounts with 
credit balances or even a mixture. The main thing is that, the effect on totals is 
nil. 

To correct such errors, the accounts involved have to be corrected to take care 

of the amounts overstated.

             

The corrected trial balance will look like the following:

    

                                            Figure 6.12 Corrected trial balance

Application Activity 6.2.

Give the journal entries needed to record the corrections of the following. 
i) Extra capital of FRw. 10,000 paid into the bank had been credited to 
    Sales account. 
ii) Goods taken for own use FRw. 700 had been debited to General 
     Expenses. 
iii) Private insurance FRw. 89 had been debited to Insurance account. 
iv) A purchase of goods from C Kelly FRw. 857 had been entered in the 
     books as FRw. 587. 
v) Returns inwards FRw. 168 from M McCarthy had been entered in error 
     in J Charlton’s account. 

vi) A sale of a motor van FRw. 1,000 had been credited to Motor Expenses. 

6.3. Errors that affect the trial balance

    Learning Activity 6.3.

After all transactions have been posted from the journal to the ledger, it is a 
good practice to prepare a trial balance. A trial balance is simply a listing of the 
ledger accounts along with their respective debit or credit balances for self
check to determine that debits equal credits. 

What can you do in case the credit side of trial balance totals does not match 

with the debit side total of credit balance?

6.3.1. Understanding the errors that do not affect the trial balance

These errors will affect the totals of the list of account balances. That means 
that the arithmetical accuracy of accounts will be in doubt. The totals of debit 
balances will not equal the totals of credit balances

The likely causes may be as follows: 

Transaction amount is posted only on one side of the accounts. 
A transaction is posted only on one side of both accounts. 
A transaction is posted correctly following double entry but different amounts
Error on balances of accounts. 
Balance on an account is shown on the wrong side of the account when opening 
the ledger accounts or when taken up to the trial balance. 
A balance is omitted from the trial balance. 

6.3.2 Correction of errors that affect trial balance

To correct such errors, only one account will be needed. The other account to 
fulfill double entry will be the suspense account. 
Suspense account is a temporary account that is opened to take care of 
differences between the total in the list of account balances. This account can 
also be used in case a bookkeeper does not know the other account to debit or 
credit. Once the other account is known then it is debited or credited and the 
corresponding entry to be in the suspense account. 

While correcting the error, the difference in the totals of the list of account 
balances is placed in the suspense account pending correction. During 
correction, one account to be corrected is debited or credited then the suspense 
account is credited or debited respectively.
 
The balance to be shown on the suspense accounts depends on which side of 
the list of account balances has the lower total. 

If the debits totals exceed total credits, then an amount is included on the credit 
side of the list of account balances so that the debits equal credits and is called 
Suspense account. This is a credit balance and will be taken to the suspense 
account on the credit side. 

If the credits totals exceed total debits, then an amount is included on the debit 
side of the list of account balances so that the debits equal credits. This is a 
debit balance and will be taken to the suspense account on the debit side. 
The errors that affect trial balance are automatically detected in quick book 

software and it cannot allow the next step.

Example of recording the transaction with error 

Purchase of furniture valued at Frw 12,500 by cash.
A transaction is posted correctly following double entry but different amounts. 
It means:
Debit Furniture account by 12,500
Credit cash account by 15200 

Click on save & close or Sane & new,
There is a difference of Frw 2,700 which the software requires to handle before 

next step.

     

                                          Figure 6.13 Error affecting Trial Balance

  Application Activity 6.3. 

1. What is an error?
2. Give two examples of errors that do not affect trial balance.

3. How do we handle the error that do not affect trial balance?

       End of Unit Assessment 

1. When posting an invoice for car repairs, FRW 870,000 was entered 
on the correct side of the motor expenses account. The invoice was 
for FRW 780,000. What correction should be made to the motor 
expenses account? 
i) Debit FRW 90,000 
ii) Credit FRW 90,000 
iii) Debit FRW 1,650,000 
iv) Credit FRW 1,650,000

2. The following transactions have been extracted from the books of TBB 
    Ltd on 31 December 2020 that failed to agree.
In January 2021 the following errors made in 2020 were found: 
a) Cash banked FRw. 390 had been credited to the bank column and 
    debited to the cash column in the cashbook. 
b) Sales of Frw 2,500 to J Church had been debited in error to J Chane 
    account. 
c) Returns inwards FRw. 168 from M McCarthy had been entered in 
   error in J Charlton’s account. 
d) Discounts received account had been under cast by Frw 3,000. 
e) The sale of a motor vehicle at book value had been credited in error 
     to Sales account Frw 3,600. 

     You are required to show the journal entries necessary to correct the errors.