10 Difference between Error of Omission and Error of Commission (With Table)

What is the main difference between error of omission and error of commission? Error of omission are those errors that occurs from partial or complete omission of a transaction in the books of accounts, while error of commission are those that occur due to incorrect recording of transactions in the books of accounts.

Accounting errors are common while recording transactions in the business. Error of omission and error of commission are the most common types of accounting errors. These errors may sound similar, but they are different in principles.

This post explains the differences between error of omission and commission with their similarities. Take the time to read through their entire article and you will appreciate the need of hiring an internal auditor to help correct the errors.

Difference between Error of Omission and Error of Commission with Table

Basic Terms	Error of Omission	Error of Commission
Definition	Failing to do something that was required	Doing something incorrectly or wrongly
Nature	A failure of inaction	A failure of action
Effect on Financial Statements	Can lead to an understatement of assets or revenue	Can lead to overstatement or understatement of financial statements
Impact on Accuracy	Tends to understate financial results	Can affect both overstatement and understatement
Types of Errors	Omissions can involve missing out on recording transactions or failing to include necessary details	Commissions can involve recording transactions incorrectly or making inappropriate entries
Reversibility	Typically easier to correct by adding the missing information	May require complex corrections or adjustments
Examples	Forgetting to record a sale Failing to record a purchase invoice Neglecting to record depreciation expense	Entering a transaction in the wrong account Overstating revenue by including fictitious sales
Legal and Ethical Implications	May lead to compliance issues but often less severe	Can have serious legal and ethical implications, such as fraud
Impact on Decision-Making	May result in inaccurate information for decision-making	Can distort financial analysis and decision-making

What Is Error of Omission?

An error of omission occurs in accounting when someone fails to record or include essential information or transactions in financial statements or records. It involves missing out on something that should have been documented or disclosed.

Examples of Error of Omission:

Unrecorded Sales: Forgetting to record a sale made to a customer. If a company doesn’t record the sale, it won’t recognize the revenue, which can lead to an understatement of income.

Missed Expenses: Failing to include necessary expenses, such as rent or utility payments, in the financial records. This can result in an understatement of expenses and an overstatement of profits.

Omitted Depreciation: Neglecting to record depreciation on assets, like machinery or vehicles, can lead to an understatement of expenses and an overstatement of the asset’s value on the balance sheet.

Missed Interest Income: Not documenting interest income earned on investments or loans. This can result in an understatement of revenue.

Overlooked Tax Deductions: Failing to include eligible tax deductions when filing tax returns. This omission can lead to paying more taxes than necessary.

What Is Error of Commission?

An error of commission in accounting occurs when someone takes an incorrect action or makes an inappropriate entry in financial records. It involves doing something incorrectly or wrongly that affects the accuracy of financial statements.

Examples of Error of Commission:

Recording in the Wrong Account: Entering a financial transaction, such as a purchase or sale, in the wrong account. For instance, recording a payment for office supplies in the equipment account.

Overstating Revenue: Including fictitious sales or inflating revenue figures in financial statements to make the company appear more profitable than it actually is.

Understating Expenses: Incorrectly lowering expenses by omitting certain costs, such as utility bills or interest payments, which can lead to an overstatement of profits.

Misclassifying Assets: Categorizing an asset, like a vehicle, as an expense on the income statement rather than properly recording it as a capital asset on the balance sheet.

Inappropriate Adjustments: Making unauthorized or inappropriate adjustments to financial records to conceal financial problems or manipulate financial performance.

Main Difference between Error of Omission and Error of Commission

An error of omission happens when a transaction isn’t recorded at all in accounting books. In contrast, an error of commission occurs when a transaction is recorded, but it’s done incorrectly.
Errors of omission are usually due to accidents or oversights, where entries are accidentally left out. Errors of commission, on the other hand, result from negligence, carelessness, or a lack of full accounting knowledge.
To fix an error of omission, you simply need to add the missing entry correctly. Correcting an error of commission involves passing a rectification entry. This means you’ll need to adjust the wrongly debited or credited account and post it correctly.
In cases of errors of omission, the trial balance agrees when the omission is complete and disagrees when it’s partial. In contrast, with errors of commission, the trial balance may or may not agree.

Similarities between Error of Omission and Commission

Both are types of accounting errors.
Both may affect a company’s reported profitability.
Both can impact the accuracy of financial statements.
Both types of errors can typically be corrected with adjustments.
Both may require revisions to financial records or statements.
Both errors can result in compliance issues if not addressed..
Both can influence financial analysis and decision-making processes.
Both may have legal and ethical repercussions if not properly resolved.
Both can potentially result in financial misrepresentation if left uncorrected.
Both types of errors require attention and correction to ensure accurate financial reporting

Conclusion

Errors of omission and errors of commission are distinct types of accounting mistakes, each with its own characteristics and consequences.

An error of omission occurs when something important is left out or not recorded in financial records, potentially leading to an understatement of income or expenses. It involves the absence of action.

An error of commission involves taking incorrect actions or making inappropriate entries, affecting the accuracy of financial statements, and potentially leading to overstatements or understatements of financial figures. It involves taking the wrong action.

Both types of errors can impact the accuracy of financial statements, which in turn can affect decision-making, compliance, and the overall financial health of a business.

Recognizing these differences is crucial for identifying and rectifying accounting errors to ensure accurate and reliable financial reporting.

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