Which type of error occurs when credit sales is wrongly posted to Purc...
Error of Commission occurs when an entry is made to the correct type of account but in the wrong account within that type. In this case, recording a sales transaction in the Purchase Day Book is a mistake involving recording in an incorrect book of accounts. This type of error reflects a clerical mistake, such as posting a transaction under the wrong account or category but still in a logically consistent (though incorrect) place.
Other types of errors:
- Error of Omission would be if the credit sales were not recorded at all.
- Compensatory Error occurs when two or more accounting errors cancel each other out.
- Error of Principle involves a transaction that is recorded in violation of fundamental accounting principles, such as recording a capital expense as a revenue expense.
In this scenario, since the transaction is mistakenly recorded in a different book altogether, the most fitting description is an Error of Commission.
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Which type of error occurs when credit sales is wrongly posted to Purc...
Credit sales is posted to purchase day book,
such that new expense (debit) balance and liability (credit) is created at the same time.
Which type of error occurs when credit sales is wrongly posted to Purc...
Error of commission occurs when a transaction is recorded incorrectly due to a mistake or error made by the person responsible for recording the transaction. In this case, the credit sales are wrongly posted to the Purchase Day Book, which is an incorrect classification of the transaction.
Explanation:
1. Error of Commission:
- An error of commission occurs when a transaction is recorded incorrectly due to a mistake or error made by the person responsible for recording the transaction.
- This type of error involves an action being taken incorrectly, such as posting a transaction to the wrong account or recording it under the wrong heading or classification.
- In this scenario, the credit sales are wrongly posted to the Purchase Day Book, which is an incorrect classification of the transaction.
- The person responsible for recording the transaction made an error by incorrectly classifying the credit sales as a purchase.
2. Purchase Day Book:
- The Purchase Day Book is a subsidiary book used to record all credit purchases made by a business.
- It is used to keep track of all purchases made on credit, including the details of the supplier, the invoice number, the date of the purchase, and the amount owed.
- Credit purchases are recorded in the Purchase Day Book to maintain an accurate record of all liabilities owed by the business.
3. Credit Sales:
- Credit sales refer to the sales made by a business where the customer is allowed to pay at a later date.
- These sales are recorded separately from cash sales and are usually recorded in a Sales Day Book or a Sales Journal.
- Credit sales represent an increase in the accounts receivable and revenue of the business.
4. Impact of the error:
- If credit sales are wrongly posted to the Purchase Day Book, it will result in an incorrect classification of the transaction.
- This error will affect the accuracy of the Purchase Day Book, as it will include transactions that do not belong to it.
- Additionally, it will lead to an incorrect representation of the business's liabilities and purchases made on credit.
- The error will also impact the Sales Day Book or Sales Journal which should have recorded the credit sales.
Conclusion:
In conclusion, the error of commission occurs when credit sales are wrongly posted to the Purchase Day Book. This error results in an incorrect classification of the transaction and affects the accuracy of the Purchase Day Book and the representation of the business's liabilities and purchases made on credit.