A construction company purchased new equipment for $15,000. The transaction was incorrectly recorded as a debit to the Repairs and Maintenance expense account and a credit to Cash. What type of error is this, and does it affect the trial balance agreement?

Answer options:

Error of commission; it affects the trial balance agreement.

Error of principle; it does not affect the trial balance agreement.

Error of original entry; it does not affect the trial balance agreement.

Error of principle; it affects the trial balance agreement.

How to approach this question

Identify the nature of the error: confusing capital expenditure (asset) with revenue expenditure (expense). This is a fundamental accounting principle. Check if debits equal credits.

Full Answer

B.Error of principle; it does not affect the trial balance agreement.✓ Correct

Recording the purchase of a non-current asset (capital expenditure) as an expense (revenue expenditure) is an error of principle. Because a debit of $15,000 and a credit of $15,000 were still recorded, total debits will equal total credits, meaning the trial balance will still agree.

Common mistakes

Confusing error of principle with error of commission.

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