Transposition Errors
What is a transposition error?
Switching the order numbers (e.g. writing 320 instead of 230).
An omission error always causes the trial balance totals to be unequal. True or False?
False
What happens when a journal entry records the wrong amount?
The financial statements will show inaccurate balances.
Where should Accounts Payable be listed on the balance sheet?
Current Liabilities
What is the main purpose of a trial balance?
To ensure total debits equal total credits.
How can you often detect a transposition error in a trial balance?
The difference is usually divisible by 9
What is an omission error in accounting?
When a transaction is completely left out of the records.
Identify the error: Debiting Accounts Payable instead of debiting Inventory.
Incorrect account used in journal entry.
If a current liability is recorded under non-current liabilities, what is affected?
The classification of liabilities and liquidity ratios.
Does a balanced trial balance guarantees that there are no accounting errors.
False
A company recorded a sale as $721 instead of $712. What type of error is this, and how much is the difference?
Transposition error; difference is $9.
Give an example of an omission error.
Forgetting to record a utility bill payment or any other relevant example
What is the impact of recording cash received from a customer as service revenue before it is earned?
Revenue recognition error.
How can errors on the balance sheet can impact investor decision-making.
The financial statement can either be overstated or understated
If a $100 transaction is posted to the wrong account but correct side (debit/credit), will the trial balance still balance?
Yes
If a transposition error occurs, does it affect the balance sheet, the income statement, or both?
Both as incorrect numbers affect multiple accounts
What is the risk of omission errors for financial reporting?
It can lead to inaccurate financial statements and misinformed decisions.
If you debit equipment and credit wages expense, what kind of error is it?
Misclassification error.
If $5,000 of cash is incorrectly recorded under inventory, what sections of the balance sheet are misstated?
Assets - specifically cash and inventory are both current assets
What should you first check if your trial balance is off by an amount divisible by 9?
A transposition error.
Explain how a transposition error could still allow the trial balance to balance.
If the same incorrect number is posted to both debit and credit sides, the trial balance will still balance.
If sales worth $10,000 are omitted from the books, what two major accounts will be affected?
Revenue and accounts receivable.
How can a suspense account help when an incorrect journal entry is discovered?
It temporarily holds unexplained differences until corrections are made.
Describe how a misstatement of asset value can affect the equity section of the balance sheet
An overstatement or understatement of assets can lead to inaccurate reporting of owners’ equity
What are two common errors that a trial balance might not detect?
Errors of omission and errors of commission (wrong account but correct side)