Error of Principle (Cambridge International IGCSE Accounting)

Error of principle

What is an error of principle?

• An error of principle occurs when one entry for a transaction is entered into an incorrect account and the type of account is also incorrect

  • A transaction for an expense could have been entered into an asset account

• The correct amount is included in the total for the debits and the total for the credits

  • The totals will therefore balance

Exam Hint It is very easy to confuse an error of principle with an error of commission. An error of commission occurs when an account is confused with another account that has something in common. For example, they are both expenses, or they are both trade receivables.

How do I correct an error of principle?

• You correct an error of principle the same way as you would correct an error of commission

• Undo the entry in the incorrect account

  • This means making an equal entry on the opposite side of the account

• Make an entry in the correct account

Worked Example On 1 March 2024, Ashika identified an error where $50 was paid for petrol, but the entry was made in the vehicles account rather than the vehicle expenses account. The transaction was entered correctly in the cash book.

Prepare journal entries to correct the error. A narrative is required.

Answer:

The accounts currently look like:

• Debit vehicles $50
• Credit cash/bank $50

The accounts should look like:

• Debit vehicle expenses $50
• Credit cash/bank $50

Fix the errors

• The vehicles account has been debited by mistake, as this is an asset account not an expense account

  • Undo the mistake by crediting the vehicles account
  • Debit the vehicle expenses account

Final answer: Journal

Final answer: Date	Final answer: Details	Final answer: Debit Final answer: $**	Final answer: Credit Final answer: $
Final answer: 2024 Final answer: Mar 1	Final answer: Vehicle expenses	Final answer: 50
	** Vehicles		Final answer: 50
	Final answer: Correction of error of principle - vehicle expenses were debited to the vehicles account