Error of principle

What it means

An error where an item is posted to the wrong class of account, such as treating capital expenditure as revenue expenditure; it does not affect the trial balance.

Example

Buying a machine (capital) recorded as repairs (an expense) is an error of principle.

Why it matters

It distorts profit and the statement of financial position, yet the trial balance still balances.

In practice

An error of principle records a transaction against the wrong class of account, which breaks an accounting rule. The trial balance still agrees because a valid debit and credit were made. The classic example is treating capital expenditure as revenue expenditure. RM4,000 spent buying a machine is debited to repairs (an expense) instead of the machine account (a non-current asset). This overstates expenses, understates profit and leaves the asset off the statement of financial position. Correction moves the amount from the wrong type of account to the right one.

Students often confuse it with an error of commission. An error of commission uses the correct type of account but the wrong individual account within it. An error of principle jumps to a completely different category. If an expense and an asset have been confused, it is principle. If two customers have been confused, it is commission.

If you are unsure how to correct these errors and restate profit, one of our teachers can work through the steps with you. Book a trial class.

Related terms

• Capital expenditure
• Revenue expenditure
• Error of commission

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.1 The trial balance (page 13).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.