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Which type of error occurs when credit sale is wrongly posted to purchases book?
- a)Error of commission
- b)Error of omission
- c)Compensatory Error
- d)Error of principle
Correct answer is option 'A'. Can you explain this answer?
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Which type of error occurs when credit sale is wrongly posted to purch...
Understanding the Error of Commission
When a credit sale is mistakenly posted to the purchases book, it results in an error of commission. This type of error occurs when a transaction is recorded in the wrong account, but the entry is mathematically correct.
What is an Error of Commission?
- An error of commission happens when:
- A transaction is recorded in the wrong ledger account.
- The amounts involved in the transaction are accurate.
- In this case, the credit sale should have been recorded in the sales account instead of the purchases account.
Consequences of Error of Commission
- Misleading Financial Statements:
- This error distorts the financial statements, leading to incorrect reporting of revenues and expenses.
- Impact on Profitability:
- Since sales are recorded as purchases, the profit margin appears lower than it actually is.
- Difficulty in Analysis:
- Financial analysts may find it challenging to assess the company's performance due to erroneous data.
Comparison with Other Errors
- Error of Omission:
- This occurs when a transaction is completely omitted from the records.
- Compensatory Error:
- This is when two errors offset each other, leaving the accounts balanced incorrectly.
- Error of Principle:
- This involves recording a transaction in violation of accounting principles, such as treating capital expenditure as revenue expenditure.
Conclusion
Recognizing an error of commission is crucial for accurate financial reporting. Regular audits and reconciliations can help identify such errors and ensure that financial statements reflect the true state of affairs.
When a credit sale is mistakenly posted to the purchases book, it results in an error of commission. This type of error occurs when a transaction is recorded in the wrong account, but the entry is mathematically correct.
What is an Error of Commission?
- An error of commission happens when:
- A transaction is recorded in the wrong ledger account.
- The amounts involved in the transaction are accurate.
- In this case, the credit sale should have been recorded in the sales account instead of the purchases account.
Consequences of Error of Commission
- Misleading Financial Statements:
- This error distorts the financial statements, leading to incorrect reporting of revenues and expenses.
- Impact on Profitability:
- Since sales are recorded as purchases, the profit margin appears lower than it actually is.
- Difficulty in Analysis:
- Financial analysts may find it challenging to assess the company's performance due to erroneous data.
Comparison with Other Errors
- Error of Omission:
- This occurs when a transaction is completely omitted from the records.
- Compensatory Error:
- This is when two errors offset each other, leaving the accounts balanced incorrectly.
- Error of Principle:
- This involves recording a transaction in violation of accounting principles, such as treating capital expenditure as revenue expenditure.
Conclusion
Recognizing an error of commission is crucial for accurate financial reporting. Regular audits and reconciliations can help identify such errors and ensure that financial statements reflect the true state of affairs.
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Which type of error occurs when credit sale is wrongly posted to purchases book?a)Error of commissionb)Error of omissionc)Compensatory Errord)Error of principleCorrect answer is option 'A'. Can you explain this answer?
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Which type of error occurs when credit sale is wrongly posted to purchases book?a)Error of commissionb)Error of omissionc)Compensatory Errord)Error of principleCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which type of error occurs when credit sale is wrongly posted to purchases book?a)Error of commissionb)Error of omissionc)Compensatory Errord)Error of principleCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which type of error occurs when credit sale is wrongly posted to purchases book?a)Error of commissionb)Error of omissionc)Compensatory Errord)Error of principleCorrect answer is option 'A'. Can you explain this answer?.
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