ExpertEasy2 marksShort Answer
ACCA · Question 07 · Preparing a Trial Balance and Error Correction
Section A
A cross-border logistics firm, TransGlobal, discovered that a payment of $4,500 for vehicle repairs was incorrectly debited to the Vehicles (Asset) account. The credit entry to the bank was correct. What is the name of this type of accounting error?
Section A
A cross-border logistics firm, TransGlobal, discovered that a payment of $4,500 for vehicle repairs was incorrectly debited to the Vehicles (Asset) account. The credit entry to the bank was correct. What is the name of this type of accounting error?
How to approach this question
Identify the nature of the mistake: an expense (repairs) was recorded as an asset (vehicles). This violates a fundamental accounting principle.
Full Answer
An error of principle occurs when an entry is made in the wrong class of account, such as capitalizing a revenue expense (repairs) by debiting a non-current asset account instead of an expense account.
Common mistakes
Confusing it with an error of commission (wrong account, but correct class).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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