Error Of Principle

Filed Under:
Dictionary Says

Definition of 'Error Of Principle'


An accounting mistake in which an entry is recorded in the incorrect account, violating the fundamental principles of accounting. An error of principle is a procedural error, meaning that the value recorded was the correct value but placed incorrectly. For example, a company may record personal expenses as business expenses. An error of principle is different than failing to record the item in question (“error of omission”), or recording the wrong value in the correct account (“error of commission”). These errors are referred to as input errors.

Investopedia Says

Investopedia explains 'Error Of Principle'


The complexities of business transactions, along with the human component of accounting, can lead to errors. Discovering an error of principle takes some detective work, since looking at a trial balance, which contains the name of the account and its value, only shows whether debits equal credits. While how the error is corrected depends on the type of error, a common correction would be to subtract out the value of the item from the incorrect account, and then add it into the correct account.

Errors of principle can be considered material and significant errors, because they can affect how decisions are made. If a company discovers an error of principle after reporting its finances and determines that the error significantly impacts the report, it typically issues a restatement.

comments powered by Disqus
Hot Definitions
  1. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  2. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  3. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
  4. Private Equity

    Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity.
  5. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  6. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
Trading Center