Which of the following is considered an accounting error?

• A. Classifying an expense as an asset
• B. Transposing digits when recording a transaction
• C. Recording revenue when cash is received
• D. Preparing financial statements in accordance with GAAP

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of accounting errors. Accounting errors are unintentional mistakes made in the process of recording, classifying, or summarizing financial transactions. These errors can affect the accuracy of financial statements.
2. Step 2: Analyze the first option: 'Classifying an expense as an asset.' This is an accounting error because it misrepresents the nature of the transaction, leading to incorrect financial reporting. Expenses should be recorded in the income statement, while assets are recorded in the balance sheet.
3. Step 3: Analyze the second option: 'Transposing digits when recording a transaction.' This is a common accounting error known as a transposition error. For example, recording \$96 as \$69 would result in incorrect financial data.
4. Step 4: Analyze the third option: 'Recording revenue when cash is received.' This is not necessarily an accounting error. It depends on the accounting method used. Under cash basis accounting, revenue is recorded when cash is received, which is correct. However, under accrual basis accounting, revenue is recorded when earned, regardless of cash receipt.
5. Step 5: Analyze the fourth option: 'Preparing financial statements in accordance with GAAP.' This is not an accounting error. GAAP (Generally Accepted Accounting Principles) provides guidelines for accurate and consistent financial reporting, and following GAAP is considered correct practice.