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Wages paid to a worker making additions to machinery amounting to Rs. 5,000 were debited to the Wages account. Identify the type of error.
- a)Error of principle
- b)Compensating error
- c)Error of omission
- d)Error of commission
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Wages paid to a worker making additions to machinery amounting to Rs....
Errors are classified as:
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- Error of Omission
- Error of Commission
- Error of Principle
- Compensating error
All the expenses paid for purchase of machinery should be debited to machinery account as its a capital expenditure. Hence, Wages paid for installation of machinery debited to wages account is an error of principle.
Most Upvoted Answer
Wages paid to a worker making additions to machinery amounting to Rs....
< b="" /> Error of Principle:
Explanation:
An error of principle occurs when a transaction is recorded in a wrong account due to a mistake in understanding or applying the accounting principle. In this particular case, the wages paid to a worker for making additions to machinery were mistakenly debited to the Wages account. The correct account to be debited in this case should have been the Machinery account.
The Wages account is used to record the wages paid to employees for their services, while the Machinery account is used to record the cost of acquiring or improving machinery. By debiting the Wages account instead of the Machinery account, the transaction is recorded in the wrong account, resulting in an error of principle.
This error affects the accuracy of the financial statements because it misrepresents the nature of the transaction. The Wages account will show a higher balance than it should, while the Machinery account will not reflect the cost of the additions made. As a result, the income statement and balance sheet will be incorrect, leading to unreliable financial information.
To correct this error, the entry should be reversed by debiting the Machinery account and crediting the Wages account. This will rectify the mistake and ensure that the financial statements reflect the correct information.
In conclusion, the wages paid to a worker for making additions to machinery being debited to the Wages account is an error of principle. It is important for accountants to have a clear understanding of the appropriate accounts to be used for different transactions to avoid such errors and maintain the accuracy of financial records.
Explanation:
An error of principle occurs when a transaction is recorded in a wrong account due to a mistake in understanding or applying the accounting principle. In this particular case, the wages paid to a worker for making additions to machinery were mistakenly debited to the Wages account. The correct account to be debited in this case should have been the Machinery account.
The Wages account is used to record the wages paid to employees for their services, while the Machinery account is used to record the cost of acquiring or improving machinery. By debiting the Wages account instead of the Machinery account, the transaction is recorded in the wrong account, resulting in an error of principle.
This error affects the accuracy of the financial statements because it misrepresents the nature of the transaction. The Wages account will show a higher balance than it should, while the Machinery account will not reflect the cost of the additions made. As a result, the income statement and balance sheet will be incorrect, leading to unreliable financial information.
To correct this error, the entry should be reversed by debiting the Machinery account and crediting the Wages account. This will rectify the mistake and ensure that the financial statements reflect the correct information.
In conclusion, the wages paid to a worker for making additions to machinery being debited to the Wages account is an error of principle. It is important for accountants to have a clear understanding of the appropriate accounts to be used for different transactions to avoid such errors and maintain the accuracy of financial records.
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Wages paid to a worker making additions to machinery amounting to Rs. 5,000 were debited to the Wages account. Identify the type of error.a)Error of principleb)Compensating errorc)Error of omissiond)Error of commissionCorrect answer is option 'A'. Can you explain this answer?
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