Which of the following describes the error that occurs when a transaction is recorded in the wrong account, effectively making it an error of principle?

• A. Error of Principle
• B. Clerical error
• C. Transposition error
• D. Fraud

Answer: (A)

This item tests understanding of what constitutes an error of principle. An error of principle happens when a transaction is posted to the wrong type of account, so its classification is incorrect rather than just its amount. For example, recording a capital expenditure as an expense or treating revenue as an asset changes the fundamental nature of the item and breaches the accounting rules about classification. That’s why describing a transaction that is recorded in the wrong account—changing its classification—fits as an error of principle.

Clerical error would involve simply a mistake in figure or posting errors that don’t alter the fundamental classification. A transposition error is a specific clerical slip where digits are swapped. Fraud is a deliberate misstatement.