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THE UNIVERSITY OF ARUSHA
TOWN CAMPUS
DIPLOMA IN PROCUREMENT AND SUPPLY
COURSE TITLE : INTRODUCTION TO ACCOUNTING
AND COSTING
COURSE CODE : PST 05209
COURSE INSTRUCTOR :SIR MKUYA
TYPES OF WORK :INDIVIDUL ASSINMENT -
STUDENT NAME :ABRAHAMANI OMARI HASSAN.
REGISRATION NO : 2018110197
SUBMISSION DATE :15 APR 2019.
QUESTION
1. Explain an accounting adjustment, Correction of Errors, Errors
are of 2 main types, A disposal account and Provisions of depreciation
and doubtful debts.
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1. An accounting adjustment is a business transaction that has not
yet been included in the accounting records of a business as of a
specific date. Unlike entries made to the general journal that are a result
of business transactions, account adjustments are a result of internal
events. Internal events are those events that have occurred in the
business that don't involve an exchange of goods or services with another
entity.
Correction of Errors
While recording transactions, whether manually or using a computer
system, errors may arise. Such errors need to be corrected. However, in
accounting, errors are not corrected using erasers or correction fluids but
rather by making other accounting entries that would set off those errors
and at the same time show a correct financial state of the business.
Errors are of 2 main types:
1. Errors not affecting trial balance: The trial balance still agrees though
there are errors. In other words, these are errors not revealed by the trial
balance.
2. Errors affecting trial balance: The trial balance does not agree
because there are errors. In other words, these are errors revealed by the
trial balance.
Errors not affecting trial balance are listed as follows:
i. Error of omission - a mistake that consists of not doing something you
should have done, or notincluding something such as
an amount or fact that should be included
ii. Error of commission -- a transaction that is calculated incorrectly. One
example of an error of commission is subtracting a figure that should have
been added.
iii. Error of principle -- a transaction that is not in accordance with generally
accepted accounting principles ( GAAP). One example of an accounting
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error of principle is an expenditure that is placed in an inappropriate
category
iv. Error of original entry - Accounting mistake made on one side of the
balance sheet that results in another error of the same value to be made
on the other side of the balance sheet.
v. Complete reversal of entries - As the name implies, this means that the
debit and credit entry recorded for a particular transaction are reversed.
vi. Compensating errors - This error means that the debit side of an
account is compensated by another error of the same/equal amount on the
credit side in another account.
vii. Error of duplication - are those errors which arise because of double
recording. Double posting of a transaction from journal or subsidiary books
to ledger also create such errors.
viii. Error of transposition -is a simple error of data entry that occurs when
two digits that are either individual or part of a larger sequence of numbers
are accidentally reversed (transposed) when posting a transaction.
If a company discovers that an accounting error significantly affected a
previous report, it usually issues a restatement of the original release.
The following are errors affecting trial balance:
In subsidiary books:
i. Error in total - is the sum of the sampling and non-sampling errors in
a survey
In ledger:
i. Omission of one entry
ii. Posting to the wrong side of the ledger for one entry
iii. Enter in amount for one entry
iv. Error in calculation
In trial balance:
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i. Error in amount
ii. Omission of a balance
A disposal account
Is a gain or loss account that appears in the income statement, and in
which is recorded the difference between the disposal proceeds and
the net carrying amount of the fixed asset being disposed of. The
account is usually labeled "Gain/Loss on Asset Disposal." The journal
entry for such a transaction is to debit the disposal account for the net
difference between the original asset cost and any accumulated
depreciation (if any), while reversing the balances in the fixed asset
account and the accumulated depreciation account. If there are
proceeds from the sale, they are also recorded in this account.
Provisions of depreciation and doubtful debts
The provision for doubtful debts is the estimated amount of bad
debt that will arise from accounts receivable that have been issued
but not yet collected. It is identical to the allowance for doubtful
account
If Provision for Doubtful Debts is the current period expense associated
with the losses from normal credit sales, it will appear as an operating
expense—usually as part of Selling, General and Administrative
Expenses (SG&A). If the expense is associated with extending credit
outside of a company's main selling activities, the credit loss will be
reported as a nonoperating expense.
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Refferences
https://study.com/academy/lesson/account-adjustments-types-purpose-their-link-to-financial-
statements.html
https://www.olevelprinciplesofaccounts.com/correction-of-errors.html
https://www.olevelprinciplesofaccounts.com/correction-of-errors.html
Read more: http://www.businessdictionary.com/definition/error-of-original-entry.html
https://www.investopedia.com/terms/t/transposition-error.asp
https://www.owlgen.com/question/write-a-short-note-on-types-of-errors-in-auditing
https://www.accountingtools.com/articles/2017/9/20/compensating-error
