Practice Questions
Practice Questions: Correction of Errors
This practice set tests your understanding of errors that do and do not affect the Trial Balance, how to correct them in the General Journal and ledger, and their effect on the Financial Statements. Attempt each question before checking the answer.
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How to practise correction-of-errors questions
- Step 1: Decide what the CORRECT entry should have been (account debited, account credited, and the correct amount).
- Step 2: Identify what was wrongly RECORDED, then compare it with the correct entry to see the difference.
- Step 3: Name the error type (omission, commission, principle, original entry, complete reversal or compensating). The type decides the correction method.
- Step 4: Write the correcting entry in the General Journal with a narration, then post to the ledger. Remember: a reversal error needs DOUBLE the original amount because you cancel the wrong entry and re-record the correct one.
Effect on profit and the Financial Statements
- Errors in expense or revenue accounts affect the current year's profit; errors in assets or liabilities affect only the Statement of Financial Position.
- For each correction, state whether profit increases, decreases or is unchanged. Compensating errors often have a net zero effect on profit.
- If a prior-year error was never corrected, the opening balance (opening capital) is also wrong, so the owner's capital must be adjusted when the error is corrected in the current year.
- For long, full accounts, refer to the worked-example sets; here we focus on concise journal entries and effect statements.
| Type of error | Brief meaning |
|---|---|
| Error of omission | A whole transaction is not recorded in any book at all. |
| Error of commission | The correct amount is recorded in the wrong account of the same class. |
| Error of principle | An item is recorded in the wrong class of account (e.g. an asset as an expense). |
| Error of original entry | A wrong amount is copied from the source document; both sides agree. |
| Complete reversal of entries | The account to be debited is credited and vice versa; correction is double the amount. |
| Compensating error | Two separate errors cancel each other; the Trial Balance still balances. |
All the types above do NOT affect the agreement of the Trial Balance.
Practice Questions
Question 1
Q1. Explain the meaning of errors that affect the Trial Balance (Kesilapan Ketara) and errors that do not (Kesilapan Tidak Ketara). Give TWO examples of errors that affect the Trial Balance.
Answer
Errors that affect the Trial Balance: errors that cause the Trial Balance not to balance (total Debit ≠ total Credit).
Errors that do not affect the Trial Balance: errors that do not upset the balance because Debit and Credit amounts remain equal.
Two examples of errors that affect the Trial Balance:
1. Wrongly totalling (adding up) an account balance.
2. Recording only one side of an entry (debit only or credit only).
Question 2
Q2. Perniagaan Perabot Sri Murni sold goods on credit worth RM850 to Kedai Hasnah, but the transaction was completely left out of the accounting records. State the type of error and show the General Journal entry to correct it.
Answer
Type: Error of omission (a whole transaction was not recorded).
General Journal:
Dr Accounts Receivable (Kedai Hasnah) RM850
Cr Sales RM850
(Recording the omitted credit sale to Kedai Hasnah)
Note: this error does not affect the Trial Balance because both sides were omitted.
Question 3
Q3. Bengkel Motosikal Faiz received a cash payment of RM320 from its debtor Encik Rosli, but the amount was wrongly credited to another debtor's account, Encik Roslan. State the type of error and show the General Journal entry to correct it.
Answer
Type: Error of commission (the correct amount was recorded in the wrong account of the same class: both are debtors).
General Journal:
Dr Encik Roslan's account RM320
Cr Encik Rosli's account RM320
(Correcting the payment wrongly credited to Encik Roslan)
Note: the wrong credit to Encik Roslan is cancelled by a debit; Encik Rosli's account is then credited as it should have been.
Question 4
Q4. Enterprise Elektrik Wawasan bought a computer costing RM2,400 for office use, but the purchase was wrongly recorded in the Purchases account. State the type of error, show the General Journal entry to correct it, and state its effect on profit.
Answer
Type: Error of principle (an item recorded in the wrong class of account: a non-current asset recorded as an expense/purchase).
General Journal:
Dr Office Equipment (Computer) RM2,400
Cr Purchases RM2,400
(Transferring the cost of the computer from Purchases to the correct asset account)
Effect on profit: Purchases fall by RM2,400, so cost of sales falls and both gross profit and net profit INCREASE by RM2,400. Non-current assets also increase by RM2,400.
Question 5
Q5. Kedai Runcit Mesra paid shop rent of RM540 in cash. The entry was recorded the wrong way round, namely Dr Cash and Cr Rent. State the type of error and show the General Journal entry to correct it.
Answer
Type: Complete reversal of entries (the account that should have been debited was credited, and vice versa).
The correct entry should have been: Dr Rent RM540, Cr Cash RM540.
Because the reversed entry must be cancelled AND re-recorded, the correcting amount is doubled:
General Journal:
Dr Rent RM1,080
Cr Cash RM1,080
(Cancelling the reversed entry of RM540 and recording the correct rent entry of RM540)
Question 6
Q6. While checking the records of Perniagaan Tekstil Anggun, it was found that the Purchases account was under-debited by RM200 and the Rent Received account was under-credited by RM200. State the type of error, show the General Journal correcting entry, and explain the net effect on profit.
Answer
Type: Compensating error (two separate errors that cancel each other out so the Trial Balance still balances).
General Journal:
Dr Purchases RM200
Cr Rent Received RM200
(Correcting the under-debited purchases and the under-credited rent received)
Effect on profit: Purchases increase by RM200 (profit down RM200); Rent Received increases by RM200 (profit up RM200). The net effect on profit is ZERO, which is why it is called compensating.
Question 7
Q7. After the Trial Balance of Perniagaan Kasut Indah was prepared, it was found that a credit purchase of goods actually amounting to RM1,500 had been wrongly recorded as RM1,050 in both the Purchases account and the supplier's account. State the type of error, show the General Journal entry, and state the effect on the Financial Statements.
Answer
Type: Error of original entry (a wrong amount was copied from the source document, but both sides agree).
Difference: RM1,500 - RM1,050 = RM450 (under-recorded).
General Journal:
Dr Purchases RM450
Cr Accounts Payable (Supplier) RM450
(Correcting the under-recorded credit purchase of RM450)
Effect on the Financial Statements: Purchases and cost of sales increase by RM450, so gross profit and net profit DECREASE by RM450. In the Statement of Financial Position, Accounts Payable (current liability) increases by RM450.
Why must a reversal error be corrected using double the original amount?
Do all errors affect profit?
Other resources for this chapter
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