1.0.

Introduction

Financial accounting is a concept that keeps track of the financial transactions of a company
by using guidelines that are standardized. The transactions are used to summarize or record
and be presented in the financial statement which can be a balance sheet or an income
statement (Schroeder, Clark and Cathey, 2019). This report is based on financial accounting
aspects which shall take into account the errors produced while recording financial aspects
along with the manner in which transactions are recorded in a journal and ledger.

Question No.1

(a)

Mr. Ibrahim purchases furniture=OMR 9,500

Useful life=7 years

Expected to be sold off= OMR 2,500

Furniture was used for=3 years

It was later sold at=OMR 4,300

Using the Straight line Method:

The assets purchase price-the salvage price/ by the assets estimated useful life

(9,500-2,500) /7= OMR 1,000 of depreciation a year

(9,500-4,300)/7= OMR 7,429

(4,300-2,500)=OMR 1,800

Divide 2 by useful life

2/7=0.2x 9,500=OMR 1900 depreciation for the year

Taking into account the above method it can be observed that the Mr Ibrahim gathered more
profit than loss by selling the furniture as if he had sold the furniture at the expected value
then there would be a loss of OMR 1,800 but however the furniture was sold at OMR 4,300
therefore he gained a profit of 1,800 after selling the furniture.
(b) An accounting error is regarded as a discrepancy that is non-fraudulent observed in
financial documentations. Thus such types of errors are not intentional and when they are
spotted in the financial reports they are seldom immediately fixed (Türkmen, 2016).
Moreover, the concept of accounting errors is different from accounting fraud. Accounting
errors are of several diverse types whilst small accounting errors might not affect the numbers
in the financial statements but they could cause primary distortions in the overall figures
(Acito, Burks and Johnson, 2019). Such types of errors consume a lot of time as well as
resources to find and correct. Additionally, since it is known that accounting errors can easily
disrupt the business thus it is essential to be conscious about the errors that are present and
therefore a list has been presented below related to the types of accounting errors:

1. Error of omission:

It occurs when the transaction has been not recorded by the person as one can forget to enter
the sales of service or an invoice entry that has been paid for. For example, a new business
laptop is bought by a copywriter however forgets to put the purchased entry into the books.
This error must be found however it is difficult to discover such type of errors. It can be
found when one checks if their credit equals to their debit which can be checked through trial
balance as one might have entered the transaction for the credit however not for debit. It is
also essential to do bank reconciliations on regular basis as it shall assist in double checking
the books for correctness (Ardjanov et al., 2018).

2. Error of commission:

It is based on an incorrect calculation as in subtraction of a figure that must have been added
or vice versa. Thus it occurs when the amount is entered in the right account however the
added value is wrong. For example, when to a wrong invoice payment is applied therefore the
amount that was owned by the customer shall be right in the trial balance and would obscure
the error. To find such error it is better to go through client’s sub-ledger as it would off also
for this purpose the error can also be found by using errors of reversal method (Acito, Burks
and Johnson, 2019).

3. Error of principle:

In this type the transaction is not performed according to the GAAP (Generally Accepted
Accounting Principles), such as when expenditure is placed in a category that is
inappropriate. This error is also known as the ‘input error’ because in the wrong account the
correct number has been recorded. For example, in the books business expenses are
accidently recorded in the personal expenses side. For finding this error it is essential to scan
the trail balance to find any potential errors as regardless of the mistake the credit and debit
might perhaps balance (Adalı and Kizil, 2017).

4. Subsidiary entries:

According to Türkmen (2016), when the transactions are not recorded correctly and usually
such mistake is discovered during reconciliation of bank in accordance to The Balance. For
example, in account receivable an invoice is entered that is of $10,000 in lieu of the actually
owing which is $1000. In this case when finding the error, trial balance would not show it.
Thus bank reconciliation must be done i.e. it becomes necessary to check the numbers present
on the bank statement and match it against the numbers present on one’s book. It is essential
to this frequently as if a person does this after 6 months then they would have to go through
all the records that were recorded in the past 6 months to figure out the mistake.

5. Transposition errors:

In such errors the two digits are generally reversed or transposed thus it creates an error in the
books. This type of error is a simple one however it can completely and easily throw off
one’s accounting. For example, when someone enters ‘‘2463’’ in lieu of ‘‘4263’’, to find this
type of error it is required to compare the totals of one’s bank statement with that of trail
balance. After comparing if there is a difference present between both totals is evenly
dividable by 9, it probably is an evidence of transposition error (Adalı and Kizil, 2017).

6. Rounding errors:

When a figure is rounded it can make the accounting inaccurate and can also be the reason of
creating a series of errors for future. This type of mistake can be made by either people or any
accounting software. For example: 34.945 in lieu of 34.9463, this is a small mistake and can
be fixed if the books are regularly reconciled and must not be ignored as should be checked
against the bank statements and books (Türkmen, 2016).

7. Errors of reversal

In this concept when an entry is debited in lieu of being credited or either then such error
takes place. For example, an invoice of $600 was sent to a client gets posted in accounts
payable and not in accounts receivable. To find this error it is better to check the trial balance
 and look if there is a difference between the debit and credit and then the number should be
divided by 2 and then the trails balance should be checked for that number. It might be in the
credits in lieu of debit (Acito, Burks and Johnson, 2019).

Question No.3

1. Journal Entries

Details Ref Debit Credit

1. Capital A/c OMR 3,000
CASH A/C OMR 5,000
(Started business with Cash) OMR 2,000
1. Rent expenses OMR 450
Cash paid OMR 450
(Paid rent with Cash)
3. Advertisement expenses OMR 200
Cash Paid OMR 200
(Paid for ad with cash)
5. Equipment and Tools OMR 1,000
To Bank A/c OMR 1,000
(Paid with Cheque)
6. Furniture OMR 650
Cash Paid OMR 650
(Paid with Cash)
7. Account Receivable_ Mr Ali OMR 150
Repair Service Revenue OMR 150
9. Received from Mr Ali OMR 100
Outstanding Amount OMR 50

12. Worker Wages OMR 50

Cash Paid OMR 50
14. Drawing OMR 300
Cash OMR 300
(Owner withdrew for personal use)
16. Cash OMR 210
Repair Service Revenue OMR 210
(repair service received by cash)
21. Charges OMR 20
(Bank Deducted) OMR 20
25. Cash OMR 320
Repair Service Revenue OMR 320
(repair service received by cash)
27. Taxes
(Muscat_ Municipality) OMR 75
(Paid with Cheque) OMR 75
29. Cash OMR 275
Repair Service Revenue OMR 275
(received in cash)
30. Bill
Electricity OMR 60
(Paid with Cheque) OMR 60
31. Office Expenses OMR 120
Cash OMR 120
(Paid expenses)
31. Drawing OMR 500
Cash OMR 500
(withdrew for business use)
Total 9480 9480

b. Ledger Accounts

Dr-Bank

Cr-Owners Equity

Bank Ledger

Details Debit Credit

Opening Balance OMR 0
Owners’ Equity OMR 3,000

Owner’s Equity Ledger

Details Debit Credit

Opening Balance OMR 0
Owners’ Equity OMR 3,000

Details Debit Credit

Opening Balance OMR 5,000
Owner’s Equity OMR 3,000
Rent OMR 450
Advertisement OMR 200
Equipment OMR 1,000
Furniture OMR 650
Repair revenue OMR 100
Outstanding revenue OMR 50
Worker Wage OMR 50
Cash Drew OMR 300
Cash received OMR 210
Bank Charges OMR 20
Repair Charges OMR 320
Taxes OMR 75
Cash OMR 275
Bill OMR 60
Office Expense OMR 120
Drawing Cash OMR 500

C. Trial balance

Details Debit Credit

Cash OMR 5,000
Accounts Receivable OMR 3,000
Equipment OMR 450
Account payable OMR 5,000
Rent expense OMR 1,000
Salary expense OMR 650
Worker Wage OMR 50
Cash Drew OMR 300
Cash received OMR 210
Bank Charges OMR 20
Repair Charges OMR 320
Taxes OMR 75
Cash OMR 275
Bill OMR 60
Office Expense OMR 120
Drawing Cash OMR 500

References

Acito, A.A., Burks, J.J. and Johnson, W.B., (2019). The Materiality of Accounting Errors:
Evidence from SEC Comment Letters. Contemporary Accounting Research, 36(2), pp.839-
868.
Adalı, S. and Kizil, C., (2017). A Research on the Responsibility of Accounting Professionals
to Determine and Prevent Accounting Errors and Frauds: Edirne Sample. Emerging Markets
Journal (EMAJ), University of Pittsburgh Press (USA), 7(1), pp.53-64.

Ardjanov, V.G., Klimovskikh, J.А. and Tkachenko, A.E., (2018). ACCOUNTING ERRORS
AND THE ORDER OF THEIR CORRECTION. In Актуальные тенденции и инновации в
развитии российской науки (pp. 126-129).

Schroeder, R.G., Clark, M.W. and Cathey, J.M., (2019). Financial accounting theory and
analysis: text and cases. John Wiley & Sons.

Türkmen, B., (2016). Errors and abuses in financial accounting and results. Procedia
economics and finance, 38, pp.77-83.