Which type of error occurs when an entry is made in the wrong type of account?

The correct answer is the error of principle, as this type of error refers to a situation where accounting principles have not been applied correctly. When a transaction is recorded in the wrong type of account—such as recording an expense in an income account, or an asset in a liability account—it signifies that the fundamental accounting guidelines have not been adhered to.

In accounting, following the principles ensures that financial statements accurately reflect the financial position and performance of the business. If these principles are violated, even with the correct monetary amounts, the results can lead to significant misstatements.

In contrast, while the other types of errors, like a commission error where an entry is made in the wrong account but still within the correct category (for instance, an office supply expense recorded as a cost of goods sold), share some similarities, they do not involve a violation of fundamental accounting principles. Reversal of entries and compensating errors refer to different aspects of recording missteps, but they too do not capture the essence of wrong account categorization as an error of principle does. This distinction highlights the critical nature of adherence to accounting principles in maintaining accurate financial records.