Question

A company's financial statements may contain errors even if debits and credit balance because:

A. wrong but equal amounts may have been posted to correct accounts
B. correct but equal amounts may have been posted to wrong accounts
C. wrong but equal amounts may have been posted to wrong accounts
D. of all these reasons.

Answer 1

Answer:

B. correct but equal amounts may have been posted to wrong accounts

Explanation:

It is possible that in the presence of the errors the debits and credits side remains balance.

Following errors may balance the debits and credits

• Error of omission ( Transaction is totally omitted)
• Error of commission (posting in wrong accounts by same value)
• Error of Principle (Entry made against the principle of accounting)
• Error of Original Entry (Wrong amount posted on both debit and credit sides)
• Compensating error (Two errors compensate each others effect)

All of the above errors may present in case of balanced debit and credit sides.