Page 289 - Accountancy_F5

(e) Trust and credibility In accounting, errors may arise due to
Regular occurrence of errors can erode arithmetical or clerical mistakes. Thus, we
trust and credibility with stakeholders. have two types of errors: arithmetical and
clerical errors.
Therefore, it is essential to evaluate and
correct accounting errors promptly to ensure (a) Arithmetical Errors: These errors
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the integrity of financial reporting. arise due to discrepancies between
amounts in words and amounts in
Activity 9.1 figures in a transaction. They can also
Mwakilema Company, a retail business, arise due to incorrect addition in the
is the newly consultancy firm located content of an invoice.
in in the city of Dar es Salaam. Upon
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the recent year-end audit, the audit team (b) Clerical Errors: These errors arise
identified various accounting errors from incorrect transaction posting due
that contributed to the inaccuracies to copying or writing mistakes. Clerical
in the financial statements. The Chief errors are generally committed by the
Executive Officer (CEO) of the company
is contemplating firing the accountant clerical staff in recording transactions
of the company who was responsible of either in the books of prime entry or
overseeing the preparation of financial in the ledger accounts (books of final
statements. entry).
Required: Within these types there are two main
(a) Discuss what are the possible causes categories of errors: those affecting the
of errors in the books of Mwakilema agreement of the trial balance and those
Company. In your discussion relate
each cause of error with the types which do not.
of errors mentioned in this book. Errors not affecting the
(b) To reduce errors in accounting
books, advise Mwakilema on what agreement of trial balance
should be done. When the totals of the debit and credit sides
of the trial balance are equal, this does not

The classifications of errors guarantee the correctness and accuracy of
and procedures for their the ledger account postings. There may
corrections still be some errors, which, however, do
not create a difference in the debit and
After detecting errors, either as incorrect credit totals of a trial balance. Despite this,
entries or incorrect amounts, the procedure these errors distort the financial statements,
for correcting them involves two steps. The leading to misleading or false information
first step is the identification of the correct regarding the financial performance and

double entry, and the second is to make the financial position of a business. Such errors
appropriate adjustment. include the following:

Student’s Book Form Five
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