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Sale of old furniture is wrongly transferred to Sales Account. Which type of error is this ?
- 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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Sale of old furniture is wrongly transferred to Sales Account. Which t...
An error of principle is an accounting mistake in which an entry is recorded in the incorrect account, violating the fundamental principles of accounting. An error of principle is a procedural error, meaning that the value recorded was the correct value but placed incorrectly.
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Sale of old furniture is wrongly transferred to Sales Account. Which t...
Error of Principle
An error of principle occurs when a transaction is recorded in the wrong account due to a fundamental misunderstanding of accounting principles. This is different from errors of omission or commission, which involve simply leaving out a transaction or making a mistake during data entry.
In the given scenario, the sale of old furniture should have been recorded in the Fixed Assets account, but it was wrongly transferred to the Sales Account. This is an error of principle because the accountant did not understand the basic principle of accounting that fixed assets should be recorded in the Fixed Assets account and not in the Sales Account.
An error of principle affects the accuracy of financial statements and can lead to incorrect decision-making by stakeholders. Therefore, it is important to correct the error immediately by making the appropriate journal entry to transfer the amount from the Sales Account to the Fixed Assets account.
In conclusion, an error of principle occurs when a transaction is recorded in the wrong account due to a fundamental misunderstanding of accounting principles. It is important to identify and correct such errors to ensure the accuracy of financial statements and to make informed decisions based on them.
An error of principle occurs when a transaction is recorded in the wrong account due to a fundamental misunderstanding of accounting principles. This is different from errors of omission or commission, which involve simply leaving out a transaction or making a mistake during data entry.
In the given scenario, the sale of old furniture should have been recorded in the Fixed Assets account, but it was wrongly transferred to the Sales Account. This is an error of principle because the accountant did not understand the basic principle of accounting that fixed assets should be recorded in the Fixed Assets account and not in the Sales Account.
An error of principle affects the accuracy of financial statements and can lead to incorrect decision-making by stakeholders. Therefore, it is important to correct the error immediately by making the appropriate journal entry to transfer the amount from the Sales Account to the Fixed Assets account.
In conclusion, an error of principle occurs when a transaction is recorded in the wrong account due to a fundamental misunderstanding of accounting principles. It is important to identify and correct such errors to ensure the accuracy of financial statements and to make informed decisions based on them.
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Sale of old furniture is wrongly transferred to Sales Account. Which type of error is this ?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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