December 7, 2021

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Key Errors that do not affect trial balance: Error of Omission

Key Errors that do not affect trial balance: Error of Omission
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Another type of mistake in accounting you need to know is error of omission. As the name implies, the transactions weren’t recorded in the books of account of the business. A detailed explanation of this is as follows.

Definition — What is Error of Omission

A type of accounting error, where one of more transactions’ double entry posting is omitted from the books of accounts. It occurs when a bookkeeper does not post a particular event detail in their appropriate accounts. The responsible staff may have kept the source document where he or she couldn’t find it. Therefore, no double entry was applied to that event.

Read: Errors in Accounting: meaning and Key Explanations

Key Explanations

A type of error. Generally, there are two types of errors in accounting. The one that will not affect trial balance and the one that must affect trial balance. In previous articles, I have explained many of these errors. Also, it was clearly stated how to correct the errors.

Transaction details. The transaction details, that is, the source documents may have been mismanaged by the staff. As a result, the double entry posting is not done in the appropriate books of accounts. Source documents include but are not limited to invoices, receipts and payment vouchers.

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Omission from the books of accounts. The mistake is when the event is omitted or not recorded in the accounts. Either in the journal book, treasury book (cash book) or the general ledger. Such errors can be corrected by simply posting the entries required to record the transaction in the books.

Examples. Items of stationeries brought for N37,000 were not recorded in the books of accounts. Another example goes like this: Rent received from a tenant who uses one side of the office building has not been posted. Although, a receipt was issued to the tenant.

How to know if an Error of Omission has occurred?

It is difficult to locate an error of omission, especially if the business concern does not record on source documents as one of the primary accounting policies. If such is the case, employees may use the opportunity to commit fraud.

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However, where source documents are important, it might not be easy to locate this error, unless something transpired. In such a case, a dedicated staff will have to regularly examine the source documents alongside the books of accounts. Any voucher that cannot be found in the books becomes an omission error.

Read: Key Errors that don’t affect trial balance: Error of Commission

How to Correct this Error?

It might be difficult to locate this mistake but very easy to correct it. Immediately the error is located, the responsible employee will post the normal double entry for it. Like in the above examples. As the error is seen, the double entry is passed. For items of stationeries, the entry shall be:

Dr: Stock of Stationery A/c
Cr: Treasury A/c

With the amount. That is, 35,000 Naira.

For the second example, about rent received. The double entry will be

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Dr: Treasury A/c
Cr: Rent Received A/c

With the amount in error.

Why Omission Error doesn’t Affect Trial Balance

The reason is that no entry was made in the books of accounts. Since the transaction was omitted completely, the debit and credit sides of the trial balance are not affected. The trial balance can be affected if the omission is one-sided. Partial omission means the debit side was recorded with a value while the credit side was omitted and vice versa.

Conclusion

In summary, error of omission arises from not posting a transaction in the books of accounts. It is a result of mismanaging vouchers by a responsible employee. The mistakes do not affect the trial balance. Locating this mistake is difficult. But correcting it is quite simple. As long as you understand the double entry principle.

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