Original Entry Error

Accounting Book of Prime Entry Purchase Day Book Trial Balance Accounting Errors
An original entry error is a mistake made in a book of prime entry such as a purchase incorrectly entered in the purchase day book, which is not revealed by a trial balance.
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Definition

Original Entry Error

An original entry error refers to a mistake made during the initial recording of a transaction in the primary accounting records, often referred to as the book of prime entry. This error typically occurs at the first point of documentation, such as mistakenly entering a financial transaction in the purchase day book. These errors are inherent in the initial preparation and may not be evident during the trial balance stage.

Examples

  1. Misrecorded Purchase:

    • Suppose a business purchases office supplies costing $500 but incorrectly records the amount as $50 in the purchase day book.
    • This mistake will propagate through the account unless specifically identified and corrected.

  2. Incorrect Vendor:

    • If a transaction meant for Vendor A is incorrectly entered under Vendor B in the purchase day book, it could result in mismatched vendor balances.
    • This error may not be discovered until a reconciliation or audit is performed.

Frequently Asked Questions

1. Why are original entry errors not revealed by a trial balance?

  • Answer: Original entry errors are not revealed by a trial balance because the debit and credit entries are balanced. The error occurs at the initial documentation level, so if all subsequent entries reflect the original mistake, the trial balance will still balance mathematically.

2. How can original entry errors be identified?

  • Answer: These errors are often identified through detailed reviews, reconciliations, and audits. Regular internal audits and reviews of supporting documents can help detect discrepancies.

3. What is a book of prime entry?

  • Answer: A book of prime entry refers to the initial place where a business transaction is recorded, such as the purchase day book, sales day book, or cash book.

4. What should be done if an original entry error is found?

  • Answer: If an original entry error is detected, corrective journal entries should be made immediately to reflect accurate financial information.

5. Can original entry errors affect financial statements?

  • Answer: Yes, original entry errors can cause significant inaccuracies in financial statements if not corrected, as these initial records form the base for all subsequent accounting entries.

  1. Book of Prime Entry:

    • Definition: The first place where a transaction is recorded in the accounting system, also known as journals or day books.
    • Example: Purchase day book, sales day book.

  2. Trial Balance:

    • Definition: A statement that lists the balances of all ledger accounts to verify that total debits equal total credits.
    • Example: Conducted at the end of an accounting period to check the arithmetic accuracy of bookkeeping entries.

  3. Journal Entry:

    • Definition: The detailed recording of a transaction in the accounting system, including debits and credits.
    • Example: Recording a sale of inventory involving a debit to Accounts Receivable and a credit to Sales Revenue.

Online References

Suggested Books for Further Studies

  1. “Accounting Made Simple: Accounting Explained in 100 Pages or Less” by Mike Piper
  2. “Financial Accounting” by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso
  3. “Principles of Accounting” by Belverd E. Needles and Marian Powers

Accounting Basics: “Original Entry Error” Fundamentals Quiz

### What is an original entry error? - [x] A mistake made in a book of prime entry. - [ ] An error discovered during a trial balance. - [ ] A calculation error in the ledger. - [ ] A mistake in the financial statement. > **Explanation:** An original entry error refers to a mistake made when initially recording a transaction in a book of prime entry, such as a purchase day book. ### Why are original entry errors not revealed by the trial balance? - [ ] They always lead to differing debit and credit entries. - [ ] They affect only non-financial data. - [x] They remain hidden as long as debits and credits tally. - [ ] They only occur outside the general ledger. > **Explanation:** Trial balance checks only for the mathematical accuracy of ledger balances, not the correctness of original transactions. ### Which is a common cause of original entry errors? - [x] Human error during manual data entry. - [ ] Mistakes in automated software algorithms. - [ ] External audits. - [ ] Regulatory changes. > **Explanation:** Human error during the initial recording of transactions is a common cause of original entry errors. ### How can original entry errors be corrected? - [ ] Ignoring the errors if they are minor. - [x] Making corrective journal entries. - [ ] Reversing all transactions in the book of prime entry. - [ ] Deleting the original records. > **Explanation:** Proper corrective journal entries should be made upon discovering an original entry error to maintain accurate financial records. ### What document first records business transactions? - [ ] The general ledger. - [x] Book of prime entry. - [ ] Financial statements. - [ ] Bank reconciliation statement. > **Explanation:** The book of prime entry, such as the purchase day book or sales journal, is where transactions are first documented. ### Example of a book of prime entry? - [ ] Trial balance - [ ] Adjusted ledger - [x] Purchase day book - [ ] Balance sheet > **Explanation:** The purchase day book is an example of a book of prime entry, constituting the initial record point for specific transactions. ### What action should NOT be taken if an original entry error is found? - [ ] Auditing more transactions. - [x] Ignoring the error. - [ ] Making corrective journal entries. - [ ] Reviewing internal controls. > **Explanation:** Ignoring an original entry error can lead to persistent inaccuracies in financial records and statements, hence should not be a course of action. ### What role does reconciliation play in finding original entry errors? - [ ] Very minimal as reconciliation is unrelated. - [ ] It ensures calculations are correct only. - [x] It helps match records to identify discrepancies. - [ ] It replaces financial statements. > **Explanation:** Reconciliation is vital as it helps match transactions in records against external documents (like bank statements) to identify discrepancies. ### Which aspect is least likely to uncover an original entry error? - [ ] Detailed audit - [ ] Internal reviews - [ ] Account reconciliation - [x] Preliminary trial balance > **Explanation:** The preliminary trial balance primarily checks for equal debit and credit totals, not the specific accuracy of original entries. ### What is a typical consequence of an original entry error? - [ ] Audit success - [ ] Increase in profits - [x] Inaccurate financial statements - [ ] Balanced trial balance > **Explanation:** Original entry errors lead to inaccuracies in financial statements as they propagate errors throughout the accounting system.

Thank you for exploring the nuances of original entry errors with us and sharpening your accounting knowledge through this engaging quiz. Keep striving for precision in your financial expertise!

Tuesday, August 6, 2024
Original Equipment Manufacturer (OEM)
Original Cost
Day Book January 1, 1
Purchase Day Book January 1, 1
Balance January 1, 1
Balancing Figure January 1, 1
Compensating Errors January 1, 1
Journal January 1, 1
Post-Closing Trial Balance January 1, 1
Preclosing Trial Balance January 1, 1
Purchase Day Book January 1, 1
Tick Marks (Accounting) January 1, 1

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