Question

Explain errors of principle and give two examples with a measure to rectify them.

Answer 1

Errors of principle are those errors which are committed at the time of recording transactions against the accounting principle. Here are the examples of Errors of Principle.

(i) Expenses Paid for Installation of Machinery Debited to Expenses Account: In this transaction, expenses paid for the installation of machinery which is a capital expenditure and should be debited to machinery account has been treated as revenue expenditure and wrongly debited sundry expenses account. This error violates the accounting principle.

The wrong effect has been
$\begin{array}{ccc}\text{Expenses A/c}Dr& & \\ \text{To Cash A/c}& & \end{array}$

The correct effect should have been

$\begin{array}{ccc}\text{Machinery A/c}Dr& & \\ \text{To Cash A/c}& & \end{array}$

The rectification entry will be

$\begin{array}{ccc}\text{Machinery A/c}Dr& & \\ \text{To Expenses A/c}& & \end{array}$

(ii) Amount Spent on Repair of Machinery Debited to Machinery Account: In this transaction, amount of repair is revenue expenditure and should be debited to repair account which has been treated as capital expenditure and wrongly debited to the machinery account. This error also violated the accounting principle.

The wrong effect has been

$\begin{array}{ccc}\text{Machinery A/c}Dr& & \\ \text{To Cash A/c}& & \end{array}$

The correct effect should have been

$\begin{array}{ccc}\text{Repair A/c}Dr& & \\ \text{To Cash A/c}& & \end{array}$

The rectification entry will be

$\begin{array}{ccc}\text{Repair A/c}Dr& & \\ \text{To Machinery A/c}& & \end{array}$