Error of Commission

An error of commission refers to a mistake that occurs when an entry is made on the wrong side of the account or it is posted to the wrong account. This type of error results in an incorrect recording of financial transactions and can lead to inaccuracies in the financial statements.

Explanation:

1. Definition of an error of commission:
- An error of commission occurs when an entry is made on the wrong side of the account or it is posted to the wrong account.
- It involves an incorrect recording of a transaction, either by placing it on the wrong side of the account (debit or credit) or by posting it to the wrong account altogether.

2. Example of an error of commission:
- Let's say a company receives a payment of $500 from a customer. However, instead of recording it as a debit to the cash account and a credit to the accounts receivable account, the bookkeeper mistakenly records it as a credit to the cash account and a debit to the accounts receivable account.
- This error of commission results in an incorrect recording of the transaction, as the debit and credit entries are reversed.

3. Impact of an error of commission:
- An error of commission can lead to inaccuracies in the financial statements, as it misrepresents the true financial position and results of the business.
- It can affect the accuracy of the trial balance, which is used to prepare the financial statements.
- If the error is not detected and corrected, it can have a cascading effect on subsequent transactions and lead to further errors.

4. Correcting an error of commission:
- When an error of commission is identified, it needs to be corrected promptly to ensure the accuracy of the financial records.
- The correction involves reversing the incorrect entry and making the appropriate entry on the correct side of the account or in the correct account.
- In the example above, the erroneous debit to the accounts receivable account and credit to the cash account would be reversed, and the correct entries would be made.

In conclusion, an error of commission occurs when an entry is made on the wrong side of the account or it is posted to the wrong account. It is important to promptly identify and correct such errors to ensure the accuracy of the financial records and statements.