refers to unintentional mistakes in
financial information, e.g. mathematical or clerical mistakes, oversight or
misinterpretation of facts, or unintentional misapplication of accounting
policies. While recording transactions and events various errors may be
committed unintentionally. When a journal entry contains an error, the entry
can be erased or crossed out and corrected—if the error IS discovered
immediately. However, if the errors are detected after posting to ledger
accounts, the correcting entries are made. The correcting entry is recorded in
journal and posted to the general ledger exactly as regular entries are.
Some errors are counter balanced:--- Accounting
errors that are undetected can affect a variety of items, including revenues
and expenses for a given period. Some errors are counterbalanced by offsetting
errors in the ordinary accounting process in the "next period. Such errors
misstate net income in both periods, but by the end of the second period the
errors are counterbalance, and they affect the balance sheet of only first
period, not the second period.
Example: A payment of Rs. 10,000 in
March 2003 for Rent for the month April 2003. Instead of recording it as
prepaid rent, the payment was recorded as Rent Expenses.
The effect of this recording error would be to:
i. overstate rent expenses for the year 2002-2003 and understate year-end
assets by Rs. 10,000 for the first year end and
ii. Understate rent expense for the second year.
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