This mistake arises out of ignorance of fundamental principal of accountancy. Usually this type of error occurs because of:
(a) Treating a capital expenditure as revenue expenditure and vice versa.
(b) Creating inadequate provision in respect of doubtful debts.
(c) Providing insufficient depreciation on fixed assets.
For example, repairs to furniture have been wrongly debited to Furniture A/c instead of debiting Repairs A/c. It means that a transaction instead of being recorded in the right account has been recorded in wrong account of a different class. Repair is revenue expenditure; hence it should be debited to Repairs A/c. But it has been wrongly debited to Furniture A/c assuming it to be a capital expenditure. Since repairs A/c and furniture A/c belong to two different classes(Repairs A/c belongs to expenses A/c, while Furniture A/c belongs to Assets A/c), so it is an error of principal. For this error, there is no mistake in the amount on any side. So the trial balance will agree.
(a) Treating a capital expenditure as revenue expenditure and vice versa.
(b) Creating inadequate provision in respect of doubtful debts.
(c) Providing insufficient depreciation on fixed assets.
For example, repairs to furniture have been wrongly debited to Furniture A/c instead of debiting Repairs A/c. It means that a transaction instead of being recorded in the right account has been recorded in wrong account of a different class. Repair is revenue expenditure; hence it should be debited to Repairs A/c. But it has been wrongly debited to Furniture A/c assuming it to be a capital expenditure. Since repairs A/c and furniture A/c belong to two different classes(Repairs A/c belongs to expenses A/c, while Furniture A/c belongs to Assets A/c), so it is an error of principal. For this error, there is no mistake in the amount on any side. So the trial balance will agree.
