POA Notes - 4 Steps for Correction of Errors

Correction of errors is one of the topics frequently examined in POA ‘O’ Level exam. In fact, the concepts were recently examined in the latest 2016 POA ‘O’ Level exam on Paper 2 Question 5 Part (b) and (c) for a total mark of 10.

While the concepts of correcting errors are not difficult, the solutions to examples given in the textbook (All About Principles of Accounts) have combined 2 entries into a single entry. This approach is generally used in the real world by accounting practitioners as most of us are familiar with the concept of double entry.

However, there may be POA ‘O’ Level students who prefer a step-by-step approach. Therefore Mr. Wong has decided to write a technical article on this topic to elaborate the step-by-step approach. As this is a technical article, please do not read this article too close to the bed time! Of course, unless you would like to use this article as a sleeping spell. Zzz …

The six (6) types of errors

Not only you have to remember them, you have to understand them as well.

They are:

  1. Error of omission.
  2. Error of commission.
  3. Error of principle.
  4. Error of original entry.
  5. Error of complete reversal.
  6. Compensating errors.

It is important to learn each of them well in order to do well in POA ‘O’ Level exam.

Correcting the errors

To illustrate the step-by-step approach, we shall use the actual 2016 ‘O’ Level exam question. Please refer to Paper 2, Question 5.

[ Extract ] Purchases of fixtures and fittings $1,500 was recorded in the maintenance expense account.

Hey! This is not something you will learn for ‘O’ Level and forget about it once you come out of the exam hall. Such an error DO happen in the real world. What you are learning in POA is highly practical knowledge. That is one of the reasons on why you should learn Principles of Accounts (POA) in 'O' Level.

 

Let’s see how to solve such a problem. Whenever you need to correct an error, the first step is to find out what was the incorrect transaction that has been recorded. In this case:

Dr Maintenance Expense account        $1,500

Cr Cash at Bank account                                         $1,500

The second step is to write down the transaction to reverse the incorrect entry. For the above:

Dr Cash at Bank account                         $1,500

Cr Maintenance Expense account                        $1,500

The third step is to record the correct entry. This would be:

Dr Fixtures and Fittings account            $1,500

Cr Cash at Bank account                                        $1,500

The fourth and final step is to combine the transactions in step 2 and step 3:

Dr Fixtures and Fittings account            $1,500

Cr Maintenance Expense account                        $1,500

Of course, if your double entry concept is strong, you can always skip step 2 and 3. Nevertheless, when you are starting out with correction of errors, Mr. Wong would strongly advise to take the step-by-step approach.

You will be able to solve any type of correction of errors problems with the 4 steps explained above, whether it is for 'O' Level question or real-life problem.

Written by Mr. Wong – Principal POA Tutor of Mr. Wong POA Tuition