Error of Commission and its Effect on Trial Balance

Error of commission occurs when an entry is made with the wrong amount, wrong account, or wrong direction. For example, if a purchase of $100 is recorded as $1,000 or a payment to a creditor is recorded as a payment to a debtor. This type of error can affect the accuracy of the financial statements and the trial balance.

Effect on Trial Balance

The trial balance is a statement of all the accounts in the ledger and their balances. It is used to check the arithmetic accuracy of the ledger and to ensure that the debits and credits are equal. An error of commission will affect the trial balance by making it unequal, as the total of the debits will not equal the total of the credits.

Example:

Suppose a purchase of $500 is made on credit from a supplier, but the entry is recorded as a purchase of $50. This will result in an understatement of the accounts payable and an overstatement of the purchases account. The effect on the trial balance will be as follows:

- Debit side: Purchases $50, Accounts Payable $450
- Credit side: Cash/Bank $500
- The total of the debit side will be $500, while the credit side will be $500. Therefore, the trial balance will still balance, but it will not reflect the correct balances of the accounts.

Conclusion

In conclusion, an error of commission can affect the accuracy of the financial statements and the trial balance by making it unequal. It is important to identify and correct such errors to ensure that the financial statements reflect the true financial position of the organization.