Posted to the wrong kind of account
A machine treated as a repair, or fuel treated as part of a van. An error of principle changes profit, yet the trial balance agrees.
Task 1An asset recorded as an expense3 questions
An error of principle is an entry in the wrong kind of account, such as an asset recorded as an expense.
- Capital expenditure
- buying or improving something the business will keep and use for more than a year. It is an asset
- Revenue expenditure
- the day-to-day running costs. They are expenses
Thornbury Joinery pays £2,400 from the bank for a new bench saw. Lena debits Repairs and maintenance instead of Machinery.
The debit and the credit are equal, so the trial balance agrees. But expenses are too high and assets are too low.
Task 2An expense recorded as an asset2 questions
Task 3Commission or principle3 questions