Correct Answer - Option 4 : error of principle
The correct answer is an Error of principle
Purchase of a computer: It is regarded as the purchase of an asset. It is a capital expenditure of a company. It will be posted to the debit of Computer A/c.
Office Expenses: These expenses are incurred by the company in process of carrying out the business activity. These are of routine nature and hence are treated as revenue expenditure. For e.g., Electricity bill, Rent, etc. It will be posted to the debit of Profit & Loss A/c.
Treating Capital Expenditure as Revenue Expenditure is an error of principle.
Errors in Accounting:
| Type of Error |
Meaning |
Example |
| Error of principle |
This type of error arises when the wrong accounting principle is applied while performing the Accounting activities. These errors do not affect the Trial Balance
|
Treating the purchase of an asset as an expense.
|
| Error of Omission |
This type of error arises when an accountant completely or partially excludes or omits to record an entry in the books of accounts. Complete omission of entry does not affect the Trial Balance while partial omission affects the Trial Balance.
|
Payment of Electricity bill omitted to be recorded |
| Error of Commission |
This error arises when an accountant makes correct debit or credit of the accounts but makes mistake in entering the amount or posting to the wrong side in the ledger.
|
Purchase of fixed assets for Rs. 10,000 posted to the credit of Vendor's account as Rs. 1000
|
| Compensating Errors |
When one error committed by an accountant compensates another error, it is called compensating error. |
Purchase of goods from Ram Rs. 1000 & Shyam Rs. 4000 recorded as Ram Rs 4,000 and Shaym Rs. 1,000
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