Common Accounting Errors and How to Prevent Them

10 Jun Common Accounting Errors and How to Prevent Them

Error of duplication is when an accounting entry is duplicated, meaning it’s debited or credited twice for the same entry. For example, an expense that was debited twice for the same amount would be an error of duplication. For example, if you mistakenly added $500 to your expenses and you also recorded the same amount in your revenue, your balance sheet will look equal even if the items are wrong. Usually, this mistake isn’t found until you do your bank reconciliation.

Types of Accounting Errors

This essential verification step ensures payment accuracy and efficiency while preventing errors. Or look at Uber, who in 2017 discovered an error that deprived New York drivers of tens of millions of dollars on commissions from fares. The error involved Uber taking commission on fares that how to correct accounting errors includes sales tax, rather than on only the pretax portion. So for example, if a passenger paid $20 for a ride, and taxes accounted for around $2 of that fare, Uber was taking commission on the entire $20 rather than the $18.

Don’t overwhelm employees

Put practices in place that can help to detect and correct accounting errors. For example, conduct bank reconciliations every month so you can catch a problem and the error doesn’t linger on your books. Review them monthly to ensure charges have been entered correctly in your accounting bookkeeping system. Even with automation and easy-to-use accounting tools, bookkeeping mistakes can happen. Journal entry errors can end up costing your small business time and money.

Data entry errors

To mitigate these issues, it’s important to double-check entries — and implement data validation tools like Brex AI that flag inconsistencies and duplicate entries. Error of entry reversal is when the accounting entry is posted in the wrong direction, meaning a debit was recorded as a credit or vice versa. For example, cost of goods sold, which contains raw materials and inventory, is credited instead of debited and finished inventory is debited instead of credited.

Accounting Errors that Affect the Trial Balance

As a result, they don’t get an accurate financial overview or may even face legal consequences. That’s why it’s essential to be aware of different types of errors and learn how to address them. Using accounting software helps organizations prevent manual accounting mistakes, streamline processes, and have error-free financial data. Accountants use trial balance worksheets to record and match debit and credit transactions. These worksheets ease how they find the incorrect entries when both accounts don’t match.

Accounting Errors Which do not Affect the Trial Balance

• The rectification of identified accounting errors culminates in the recording of corrections.
• This is exactly how easily transposition errors can plague your books.
• After all, there’s only so much work to do, and it doesn’t make sense to hire additional staff just for the purpose of having checks and balances.
• If you catch an error along the way, fix it as soon as you can to avoid any other problems.
• For example, if the debits and credits don’t add up to the same amount in the trial balance, an accountant can easily see what account is inaccurate.
• They should record the amount they paid the software provider but forgot.

Enterprises use ‘correcting entries’ to fix mistakes they make while recording transactions on the books. A ‘correcting entry’ is a journal entry that rectifies an accounting error by adjusting retained earnings for a period. A correcting entry in accounting fixes a mistake posted in your books.

Debit

Or you purchase a tablet but don’t record this in your accounting system. This can easily happen if you misplace documentation—a receipt or invoice—so that it never gets recorded. Online accounting software, on the other hand, is way more convenient and correct than a human mind. If you don’t give them the right time and resources to handle tasks, your business will soon be holding itself with just a bobby pin. The equipment account is incorrectly totaled and understated by $500.

For example, such an error can happen when more than one person has access to the accounting system and each makes the same entry. We at Deskera, provide the best accounting software for business, with all of the above features – and so much more. After you’ve found out the difference between debits and credits, the next step is to make a suspense account. The suspense account is an entry that holds the unresolved cash until further analysis.

Inaccurate data entry

For example, if you enter an invoice once the deadline for disbursement has passed, you have to pay an additional charge and interest. Usually, adjustments can be made when you record the wrong amount. Reversals are often used when you record an entry in the wrong account. If you find a new or updated transaction after the closing date, you likely have a closing error on your hands. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. A good indicator for a transposition error is that the difference (in this case 270) is divisible by 9.