Explanation:

The correct answer is option 'B' - Principle.

Explanation:

When an expense is incorrectly recorded in an inappropriate account, it is considered an error of principle. In this case, the wages of Rs. 500 should have been recorded as an expense in the wages account, but instead, it was wrongly recorded in the machinery account.

Errors of principle occur when there is a violation of the fundamental accounting principles and concepts. These principles include the accrual principle, the matching principle, the cost principle, and the consistency principle. The accrual principle states that revenues and expenses should be recognized when incurred, regardless of when the cash is received or paid. The matching principle states that expenses should be matched with the revenues they helped generate in the same accounting period. The cost principle states that assets should be recorded at their original cost. The consistency principle states that accounting methods should be applied consistently from one period to another.

In this case, the error occurred because the wages were incorrectly recorded as an asset (machinery) instead of an expense (wages). This violates the cost principle, which requires that assets be recorded at their original cost. Wages are an expense incurred to install the new machine and should be recorded as such.

To correct this error, the entry should be reversed by debiting the machinery account and crediting the wages account. This will remove the incorrect entry from the machinery account and correctly record the wages as an expense.

In conclusion, the error of recording wages of Rs. 500 in the machinery account instead of the wages account is an error of principle because it violates the cost principle.