Answer to Question #16597 in Other Economics for mya
•In order for companies to prepare and issue financial statements, their accounting equations (debits and credits) must be in balance at year end. Discuss how errors and misstatements may occur given this requirement
The trial balance is prepared to check the arithmetical accuracy of accounts. If the trial balance does not tally, it implies that there are arithmetical errors in the accounts which require location, detection and rectification thereof. [ Even if the trial balance tallies, there may still exist some errors. There are two types of errors: Errors which are not revealed by the trial balance, and Errors which are revealed by the trial balance.Errors may happen at any of the following stages of the accounting cycle. At Recording Stage Errors of principle Errors of omission Errors of commission At Posting Stage Error of omission Complete Partial Error of commission Posting to wrong account Posting on the wrong side Posting of wrong amount At Balancing Stage Wrong totaling Wrong balancing Preparation of Trial Balance Error of Omission Error of Commission Taking wrong amount Taking wrong account Taking to the wrong side Errors can be classified into the following four categories on the basis of the nature of errors and explained here under. Errors of commission Errors of omission Errors of principle Compensating (offsetting) errors Errors of Duplication ]
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