Errors and Frauds
Que 1: What is Errors? Defines the various types of errors?
Ans: Mistakes committed by persons in charge of writing
books of accounts in recording day-to-day transactions are called errors.Any mistakes occurring in the process of recording business
transactions are called errors.
Unintentional mistakes or discrepancies occurred without
notice in the process of routine book keeping and accounting are called
errors. It should be remembered that, mistakes of unintentional errors without
any object to dupe or de-fraud anybody are called errors.
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| TYPES OF ERRORS |
The types of Errors:
a. Errors of Omission. b. Errors of Commission. c.
Compensating errors. d. Duplicating errors.
1. Technical or Clerical Errors: Errors committed in the
process of recording books of account are called technical errors. Errors
committed by persons in charge of writing day to day transaction are called
clerical errors.
a. Errors of Omission: Errors committed by omitting to record the
transactions taken place in business are called errors of omission.
Errors of omission may again two types. Errors of complete omission and
errors of partial omission.
If a transaction is completely omitted from recording it
called an error of complete omission and if part of the transaction is recorded
and part of the transaction is omitted from recording it is a case of complete
omission.
b. Errors of commission: Entries made with wrong figures or in wrong
place or in wrong side of an account are called errors of commission.
c. Compensating Errors: Errors occurred at two places balancing
one another are called compensating errors. For example, two cash receipts, one
from Mr. X Rs. 1000 has been wrongly recorded with Rs. 100/ where as another receipt
of cash from Y Rs. 100/- has been wrongly entered with Rs. 1000/ total of Rs.
1100 has been debited in cash book. The ledger accounts were also credited
accordingly.
d. Duplicating Errors: If the same transaction has been
recorded twice it is called a duplicating error. For example, one customer by
name Ramesh from Bangalore made payment of Rs. 10,000/ through State bank and
sent intimation by telegram, on receipt of telegram. The concerned clerk has
made entries on receipt of telegram. The concerned clerk has made entries on
receipt of telegram for Rs 10.000/ Fifteen days later the bank has sent credit
note for receipt of same Rs 10.000/ from Shri Ramesh of Bangalore. Again on
receipt of bank credit note the concerned clerk has entered receipt of Rs.
10,000/ to the credit of customer with the impression that the two receipts are
different from one another. Thus it is clear that recording the same
transaction twice is called a duplicating error.
2. Errors of Principles: Recording transactions against the
fundamental principles accounting are called errors of principle. Improper
treatment of items i.e., treatment of revenue items as capital item and capital
items into revenue item, not considering outstanding items in preparation of
final accounts are example of errors of principle.
Que 2: Types of fraud?
Ans: Fraud means false material representation or false
entry made with prior knowledge of its falsity or without belief in its truth
with a view to defraud somebody. It is purposeful misrepresentation or
deliberate concealment of a material fact with a view to deceive, cheat or
misled somebody.
Fraud may be classified into the following types-
1. Misappropriation of Cash: Cash is the main source around
which all activities are rotated. It is the human tendency to misuse the
opportunities available. All those involved in handling cash in big business
houses may take an undue use of their position and misappropriate the cash.
2. Misappropriation of Goods: All those involved in handling
goods may embezzle goods. Purchase department, sale department, production
department stores department etc. Goods of lesser bulky but most valuable goods
may be misappropriated by persons with high status like mechanical engineer,
production engineer, plant engineer etc. The system provides a great deal of
respect and regards to big thieves and suspects and inspects the honest ground
level worker who struggles for his day's lively hood.
3. Fraudulent Manipulation of Account: Accounts are being
manipulated by persons at the helm of affairs. The board of directors may
manipulate the accounts to show either more profit or to show less profit or to
show the financial position much better than actual position.
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