In case of error of principle the amount debited or credited will be right but to a wrong ac. This arises due to misunderstanding of accounting principles. In case of error of principle, trial balance would still tally

Answer:

The correct answer is option 'A', error of principle.

Explanation:

When wages paid for the erection of a machine are debited to the Wages account, it is considered an error of principle. Let's understand why this is the case:

Error of Principle:
An error of principle occurs when a transaction is recorded in an incorrect account due to a fundamental misunderstanding or misinterpretation of accounting principles. It involves the violation of accounting rules or principles. In this case, debiting the Wages account for the erection of a machine is incorrect because wages paid for the erection of a machine should be recorded as a capital expenditure, not as an expense.

Impact on Financial Statements:
Debiting the Wages account for the erection of a machine leads to an incorrect presentation of the financial statements. The Wages account is an expense account that reflects the cost of labor for the production of goods or provision of services. By incorrectly debiting the Wages account, the expense is overstated, leading to an inaccurate calculation of net income and ultimately distorting the financial statements.

Correct Treatment:
The correct treatment would be to debit the Machinery account (a capital expenditure account) and credit the Cash or Bank account to reflect the payment made for the erection of the machine. By doing so, the cost of erecting the machine is capitalized and added to the cost of the machine, which is recorded as a non-current asset on the balance sheet.

Rectifying the Error:
To rectify the error of principle, an adjusting entry needs to be made. The correcting entry would involve debiting the Machinery account and crediting the Wages account. This will correct the misclassification and ensure that the financial statements accurately reflect the cost of the machine.

In conclusion, debiting the Wages account for the erection of a machine is an example of an error of principle because it violates the accounting principle of correctly categorizing transactions and leads to an incorrect presentation of the financial statements.