Errors of posting transaction on wrong side

Definition and explanation

This error, as the name implies, arises when one of the debit or credit aspects of a transaction is mistakenly recorded on the wrong side of the relevant ledger account. This accounting error is called the error of posting a transaction on the wrong side of the ledger account.

When one of the debit or credit parts of a transaction is posted on the wrong side of its relevant ledger account, while the other aspect is posted on the right side of its relevant ledger account, both parts of the transaction will reside on the same side in the ledger, causing the debit and credit columns of the trial balance to go out of agreement.

In this error, since the entry is posted on the opposite of the correct side, the balance of the relevant account would be understated by the double of the wrongly posted amount and reflected in the form of a disagreement in the debit and credit columns of the trial balance.

Suppose, for example, a credit sale of $1,000, instead of being posted on the credit side, is mistakenly posted on the debit side of the sales account in the general ledger. If no other error exists in the sales account, its balance would be understated by $2,000 (i.e., the double of $1,000), causing a discrepancy of the same amount in the trial balance.

Example

James Traders purchased merchandise amounting to $5,000 on credit from Matthew Inc., a wholesaler of home and kitchen items. James’ accountant recorded the purchase transaction in the journal as follows:

However, while posting the transaction to the general ledger, the purchases account was mistakenly credited instead of being debited. There was no error in the accounts receivable account, as it was correctly credited with $5,000.

Required: Draw up the purchases account and the accounts payable account to show how the above transaction was posted to the ledger by James’ accountant. Also explain how the wrong posting to the purchases account would affect the company’s trial balance.

Solution

Effect on the relevant ledger accounts

According to the above journal entry, the purchases account must have been debited by $5,000, and the accounts payable account must have been credited by the same amount. However, the accountant mistakenly recorded the amount on the credit side of the purchases account, committing the error of posting a transaction on the wrong side of the ledger account. Resultantly, the balance of the purchases account would be understated by $10,000 ($5,000 + $5,000). There was no posting mistake in the accounts payable account.

After posting the above transaction, the two ledger accounts would look like the following:

Effect of the wrong posting on the trial balance

Due to posting a purchase transaction on the credit side of the purchases account, the debit column of the trial balance would be $10,000 ($5,000 + $5,000) short. Since posting was made on the wrong side of a ledger account, this error would cause a difference of $10,000 (i.e., double) in the trial balance.