Q.What is error of principle? Give one example.

Debiting installation wages to Wages A/c instead of Machinery A/c is an error of principle — option (b).

What is an error of principle?

• It occurs when a transaction is recorded in violation of an accounting principle — most commonly by mixing up capital and revenue items.
• Wages paid for installation of machinery are a capital expenditure — they add to the cost of bringing the machinery into working condition, so they should be debited to Machinery A/c.
• Debiting them instead to Wages A/c (a revenue expense) wrongly treats a capital item as revenue. This is an error of principle.

Why not the others? …

Errors of principle do not affect the agreement of the trial balance, so the answer is (b).

Some errors leave the trial balance in agreement because the debit and credit totals stay equal:

• Errors of principle — a transaction is recorded against accounting principles (e.g. purchase of an asset debited to an expense account), but an equal debit and credit are still posted, so the totals agree.
• Errors of complete omission and compensating errors also do not affect agreement. …

Debiting installation wages to Wages A/c instead of Machinery A/c wrongly treats capital expenditure as revenue expenditure — an error of principle (option d).

Reasoning:

• Wages paid to install machinery are part of the cost of bringing the asset to working condition, so they are capital expenditure and should be debited to the Machinery account.
• Debiting them to the ordinary Wages account treats them as a revenue expense — this breaks the rule for distinguishing capital and revenue items, i.e. a fundamental accounting principle. …

This question groups the three classic error types from the chapter — omission, principle and compensating error — as option (d) All of the above.

In the Trial Balance and Rectification of Errors chapter, errors are classified into two broad groups: errors disclosed by the trial balance (which DO cause the two sides to disagree, e.g. one-sided posting, wrong casting/totalling, a wrong balance carried forward) and errors NOT disclosed by the trial balance (which do NOT cause disagreement because both sides are still affected equally, or not affected at all) — error of omission (a transaction left out of the books entirely), error of principle (a transaction recorded in the wrong class of account, e.g. a capital expenditure treated as revenue expenditure) and compensating error (two or more errors that cancel each other's effect) all fall in this second gr …