Solution 4.4 

“My trial balance is balanced so I know my whole book-keeping system has been recorded accurately and no errors have occurred” 

The statement above is invalid.  The trial balance only proves the arithmetic accuracy of the bookkeeping system.  There are six types of error that can occur where the trial balance will still balance. 

1.     Errors of commission: This occurs where the correct amount is recorded but in the wrong accounts. For example, a credit sale to G Dunne for €1,000 is credited to sales but debited to B. Dunne’s account instead. Thus while total sales and debtors are correct and the trial balance balances, the individual debtor balances are incorrect. 

2.     Errors of principle: This is where a transaction is entered into the wrong type of account. For example a business pays €400 on repairs to motor vehicles. The book-keeper credits the bank a/c and debits motor vehicles a/c (asset a/c) instead of motor expenses a/c (expense a/c). Thus the trial balance balances, but assets are overstated and expenses are understated. 

3.     Errors of Original entry: This occurs where a book-keeper records the wrong figure in the right accounts. For example a sales invoice for €100 is debited and credited as €1,000 to the debtor and sales accounts respectively. The trial balance will still balance but sales and debtors are overstated and thus incorrect. 

4.     Compensating errors: This is where two errors have occurred and they cancel each other out. For example, an expense account is over added by €1,000 and a revenue account is over added by €1,000. The trial balance still balances, but expenses and revenues are overstated. 

5.     Complete reversal of entries: This is where the correct accounts are used but each item is shown on the wrong side of the account. For example we made a credit sale to Mitchel for €500. The correct entry is to credit sales and debit Mitchel with €500. However, the book-keeper debits the sales a/c and credit debtors with €500. In this case the trial balance still balances, but sales and debtors are both understated. 

6.     Error of omission: This occurs where a book-keeper fails to record a transaction in the books. Thus, as long as all other transaction are recorded properly then the trial balance will balance but a transaction is omitted.