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Question

_______ arise because of the failure to differentiate between capital expenditure and revenue expenditure and capital receipts and revenue receipts.

A
Errors of partial omission
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B
Errors of complete omission
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C
Errors of principle
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D
Compensating errors
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Solution

The correct option is D Errors of principle
Accounting entries are recorded as per the generally accepted accounting principles. If any of these principles are violated or ignored, errors resulting from such violation are known as errors of principle. An error of principle may occur due to incorrect classification of expenditure or receipt between capital and revenue. This is very important because it will have an impact on financial statements. It may lead to under/over stating of income or assets or liabilities, etc. These errors do not affect the trial balance.

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