Correction of Accounting Errors
Classifying the error
Errors of omission leave a transaction out entirely. Errors of commission post the right amount to the wrong account. Errors of original entry record the wrong amount - a transposition ($540 entered as $450) or a slide ($500 entered as $50). Errors of principle violate GAAP, such as capitalizing ordinary repairs. Compensating errors are two mistakes that offset. Reversing a debit and a credit is its own category.
Why the trial balance still balances
A balanced trial balance proves only that total debits equal total credits. Omitted entries, errors affecting both sides equally, and offsetting errors all keep it in balance. A single transposition produces an out-of-balance amount divisible by 9 - a useful detector, not proof. Slides produce differences of 9, 99, 999 and so on.
Traps in questions
Counterbalancing errors (income statement only) wash out over two periods; errors touching only balance sheet accounts do not and must be corrected. A material prior-period error is corrected by restating comparatives and adjusting opening retained earnings, not by running it through current income. Keep "correcting entry" distinct from "adjusting entry."
Worked example
A $540 payment was recorded as $450. The $90 difference is 9 × 10, the mark of a transposition. Correcting entry: debit the expense $90 and credit Cash $90, assuming the expense was understated.
Rule of thumb: compute the out-of-balance amount; if it is divisible by 9, suspect a transposition or slide before anything else.