Correction & Identification of Accounting Errors Flashcards

Correction & Identification of Accounting Errors Flashcards
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Error of Principle

An accounting error that occurs when you accidentally record an incorrect amount of use an estimate that isn't appropriate. This can occur if you debit an expense that should be capitalized.

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Fraud

These are intentional actions taken to misrepresent information on an accounting record. They are carried out knowingly.

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Accounting Errors

A mistake made during the accounting process. These are accidental in nature and not committed purposefully.

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You set up a suspense account after finding a mistake of $1,000 in your trial balance. You found the error was a failure to debit the Inventory account. How do you correct this?

Credit $1,000 to the Suspense account and debit $1,000 to the Inventory account.

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Suspense Account

This type of account can be temporarily set up in hold funds that are associated with mistakes in a company's trial balance. This results in a short-term balance for the account.

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Accounting Errors: Errors With an Effect On the Trial Balance

Partially recording information

Transposition errors

Carrying forward errors

General recording errors

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Accounting Errors: Errors With No Effect On the Trial Balance

Errors of omissions

Errors of principle

Errors of compensation

Errors of original entry

Reversal of entries

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14 cards in set

Flashcard Content Overview

This set of flashcards was created to help you review the difference between accounting errors and fraud. You'll be able to focus on errors that will impact your company's trial balance as well as errors that will not affect this balance. You can go over the characteristics of the following types accounting mistakes:

  • Rounding errors
  • Counterbalancing errors
  • Errors of omission
  • Errors of transposition
  • Errors of commission
  • Errors of principle

Additionally, you'll be able to consider the uses of a Suspense Account in correcting accounting errors.

Front
Back
Accounting Errors: Errors With No Effect On the Trial Balance

Errors of omissions

Errors of principle

Errors of compensation

Errors of original entry

Reversal of entries

Accounting Errors: Errors With an Effect On the Trial Balance

Partially recording information

Transposition errors

Carrying forward errors

General recording errors

Suspense Account

This type of account can be temporarily set up in hold funds that are associated with mistakes in a company's trial balance. This results in a short-term balance for the account.

You set up a suspense account after finding a mistake of $1,000 in your trial balance. You found the error was a failure to debit the Inventory account. How do you correct this?

Credit $1,000 to the Suspense account and debit $1,000 to the Inventory account.

Accounting Errors

A mistake made during the accounting process. These are accidental in nature and not committed purposefully.

Fraud

These are intentional actions taken to misrepresent information on an accounting record. They are carried out knowingly.

Error of Principle

An accounting error that occurs when you accidentally record an incorrect amount of use an estimate that isn't appropriate. This can occur if you debit an expense that should be capitalized.

Error of Omission

Accounting error when a transaction that should be recorded is left out/not tracked. Can impact balance if you remember to record a credit but not a debit. Double entry bookkeeping helps prevent.

Error of Transposition

Companies face this accounting error when the digits in a number are reversed. For example, if you should report $93 and you report $39 it would be this kind of error.

Counterbalancing Error

You commit this type of error when statements that should match do not. If your stockholder equity does not equal total assets minus total liabilities, it is an example of this.

Error of Commission

These accounting errors happen when information is calculated or inputted improperly. Some companies use automation to try to prevent this.

Rounding Error

A type of error that we see when someone mistakenly rounds down when they should round up, or vice versa.

A company reported an income of $50,00 before discovering two mistakes. A salary expense of $2,000 was skipped and depreciation was recorded and $21,000 instead of $12,000. What should income be?

50,000 - 2,000 + 9,000 = 57,000.

A company reported $40,000 income and then found it had not reported $10,000 in sales revenue and that a payroll expense of $14,000 was reported as $41,000. What was the actual income?

40,000 + 10,000 + 27,000 = 77,000.

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