<\/span>Different Types of Errors in Accounting<\/span><\/h2>\n\n\n\nYour accounting system will be as good as the data you enter into it. These entries may go wrong due to clerical mistakes or misunderstanding of the account rules. Broadly, all the types of errors in accounting can be classified into the following categories.<\/p>\n\n\n\n
\n- Error of original entry<\/strong>
When you enter the wrong figures into an account book, it leads to an error in the original entry.<\/p>
Since various other transactions may occur after that, they will have erroneous values. Finally, you will get the wrong value for all the transactions done after the wrong entry.<\/p><\/li>\n\n\n\n
- Error of duplication<\/strong>
As the name suggests, such an error happens due to duplicate entries. That means whether you are entering for a debit or credit, the same amount is entered twice. As a result, your account book will show either more expense or income.<\/p><\/li>\n\n\n\n
- Error of entry reversal<\/strong>
Sometimes credit is entered as debit or vice versa. Such is called an error of entry reversal. Suppose you have an invoice for $1500. You enter it as payable instead of receivable. That will lead to an entry marked as an expense instead of an income.<\/p><\/li>\n\n\n\n
- Error of principle<\/strong>
When you apply a wrong accounting principle while entering any transaction into your account book, it leads to an error of principle. In other words, a correct entry is written in the wrong place.<\/p>
For example, if you record your personal expenses as business expenses, you commit an error of principle. Because your overall accounting will still have errors even if you have recorded the right amount.<\/p>
Remember that it is considered a serious procedural error. Such procedural errors can result in big consequences.<\/p><\/li>\n\n\n\n
- Error of omission<\/strong>
When you miss entering the record for a transaction, that is called an error of omission.<\/p>
For example, when you fail to enter the debit of payment to a vendor, it is an error of omission. Or you fail to record a credit when an invoice is paid.<\/p>
These errors may be unintentional, but they show a lack of seriousness in recording transactions. Also, this might happen when you must do various entries at a time. Sometimes this might occur due to the misplacement of documents.<\/p><\/li>\n\n\n\n
- Error of commission<\/strong>
When an entry is made to the right account but the wrong subsidiary account or ledger, it is called an error of commission.<\/p>
For example, you receive money from a customer. You enter it as money credited, but the customer’s name is different.<\/p>
Similarly, when you are paying a vendor but recording it in another vendor\u2019s name, that is also an error of commission.<\/p><\/li>\n\n\n\n
- Compensating error<\/strong>
When you compensate a wrong entry with another wrong entry, it is called a compensating error.<\/p>
To put it another way, suppose you wrongly overstate your income balance by $1,000, and you also increase the expense by $1,000. The net resultant value of income and expense will be even, but both entries here are incorrect.<\/p><\/li>\n\n\n\n
- Error of transposition<\/strong>
This error occurs when you reverse the numbers of an amount. Due to this reversal, the value may either be overestimated or underestimated.<\/p>
For example, you have to enter an expense of $946. But you wrongly entered the value as $496. The result? You will have a balance of $450.<\/p>
Such errors can cost you heavily if they go unnoticed. You have to be careful about such entries.<\/p><\/li>\n<\/ul>\n\n\n\n
Suggested Read: Best Free and Open Source Accounting Software<\/a><\/strong><\/p>\n\n\n\n<\/span>How Can Common Errors in Accounting Impact Your Business?<\/span><\/h2>\n\n\n\n![\"Common](\"https:\/\/cdn.techjockey.com\/blog\/wp-content\/uploads\/2022\/02\/02172330\/Common-Errors-in-Accounting-1024x536.jpg\")
<\/figure><\/div>\n\n\nAccounting errors, both minor and substantial, can result in dire consequences. Here is how types of errors in accounting can impact your business.<\/p>\n\n\n\n
\nMiscalculated income statement:<\/strong> Misreporting expenses may mangle the computed operating profit margins of the company or over-report income.<\/p><\/li>\n\n\n\nMiscalculated cash flow statement:<\/strong> The incorrect reporting of items may overstate or understate the cash in hand amount to pay bills.<\/p><\/li>\n\n\n\nMiscalculated expense statement:<\/strong> If your accounts fail to record business expenses, it means you have not recorded the right deductible expense. The wrong statement will lead to overpayment of taxes.<\/p><\/li>\n\n\n\nDiscrepancy in income and expenses:<\/strong> Unclassified statements may lead to a mishap in reporting accrual accounting for the company. You need to match the expenses with the generated income properly. In case you record the expenses in a different month or year, the report will not tally.<\/p><\/li>\n\n\n\nFraudulent financial activities:<\/strong> When accounting books show serious discrepancies and wrong figures, it means something is wrong. It\u2019s time for the business to investigate the matter.<\/p><\/li>\n<\/ul>\n\n\n\nFinancial mismanagement or fraud in any business is unfortunate. But more importantly, it can lead to profound consequences, including criminal proceedings and reputational loss for the business.<\/p>\n\n\n\n
Suggested Read: Offline Vs Online Accounting Software \u2013 Quick Comparison<\/a><\/strong><\/p>\n\n\n\n<\/span>Tips to Avoid Accounting Errors by Small Businesses<\/span><\/h2>\n\n\n\n![\"types](\"https:\/\/cdn.techjockey.com\/blog\/wp-content\/uploads\/2022\/02\/02172357\/types-of-errors-in-financial-statements-1024x536.jpg\")
<\/figure><\/div>\n\n\nIf the accountant or the journal keeper is unmindful while entering the data, unintentional errors are bound to happen. Such errors may also result from outdated accounting software<\/a>.<\/p>\n\n\n\nIt is revealed only when the companies do the book closing at the month-end. Some companies tally their accounts weekly to avoid piling up wrong entries.<\/p>\n\n\n\n
In most cases, companies can correct their accounting errors without much hassle if they periodically recheck and re-verify every entry.<\/p>\n\n\n\n
Here are some essential tips to avoid accounting errors and have an error-free account book.<\/p>\n\n\n\n
\n- Train your accounting staff well<\/strong>
Employees entering accounting data must understand it well, especially the accounting requirements of your company. Thus, ensure they are trained and have complete knowledge about your business needs.<\/p>
You can also make a standard procedure and guidelines for proper documentation. This will ensure all entries are made accurately and timely. Likewise, you can have an expert who can oversee the whole work and help in avoiding major accounting errors.<\/p><\/li>\n\n\n\n
- Avoid overburdening your employees<\/strong>
Accounting data needs continuous update to keep a record of every expense detail. But overloading employees to stay updated is not a solution.<\/p>
When employees are overburdened with work, they are more likely to make errors. Give them adequate time to keep all the books updated.<\/p>
You can even find out new ways to make data entry simplified. Using the best accounting software for data entry is one of them.<\/p><\/li>\n\n\n\n
- Automate your data entry with accounting software<\/strong>
These days, the market is flooded with accounting software with various features and advantages. You can use them to keep your account book up to date and error-free.<\/p>
You can choose between desktop versions and cloud versions. Even smartphone versions can help small businesses maintain their accounts. This accounting software can even automate most of your manual entries, leading to fewer chances of errors.<\/p><\/li>\n\n\n\n
- Devise internal control to check errors<\/strong>
Work on the approach to detect types of errors in accounting and correct them instantly. Conducting monthly bank reconciliations is one way to detect accounting errors early. Even for credit card statements, you can adopt a similar practice for tallying your transaction data.<\/p>
Adopting internal control and checks will also prompt your employees to work meticulously. This will ease the burden on everyone\u2019s part.<\/p><\/li>\n\n\n\n
- Tally your budget and actual expenses<\/strong>
You cannot rule out the chances of discrepancies between your budget and data entry. Hence, it\u2019s essential to tally your budget and expenses now and then. Doing so will give you a clear idea of financial activities.<\/p><\/li>\n\n\n\n
- Conduct a periodic review of your accounts<\/strong>
Always conduct periodic reviews of your accounts. Ensure that the entries in account books are appropriate and meet the Generally Accepted Accounting Principles (GAAP) norms.<\/p>
It may be a tedious task for manual bookkeeping to review every entry. But automated accounting software can make work easy to review your account entries.<\/p><\/li>\n<\/ul>\n\n\n\n
Suggested Read: Best School Accounting Software to Manage Your School Finances<\/a><\/strong><\/p>\n\n\n\n
When you enter the wrong figures into an account book, it leads to an error in the original entry.<\/p>
Since various other transactions may occur after that, they will have erroneous values. Finally, you will get the wrong value for all the transactions done after the wrong entry.<\/p><\/li>\n\n\n\n
As the name suggests, such an error happens due to duplicate entries. That means whether you are entering for a debit or credit, the same amount is entered twice. As a result, your account book will show either more expense or income.<\/p><\/li>\n\n\n\n
Sometimes credit is entered as debit or vice versa. Such is called an error of entry reversal. Suppose you have an invoice for $1500. You enter it as payable instead of receivable. That will lead to an entry marked as an expense instead of an income.<\/p><\/li>\n\n\n\n
When you apply a wrong accounting principle while entering any transaction into your account book, it leads to an error of principle. In other words, a correct entry is written in the wrong place.<\/p>
For example, if you record your personal expenses as business expenses, you commit an error of principle. Because your overall accounting will still have errors even if you have recorded the right amount.<\/p>
Remember that it is considered a serious procedural error. Such procedural errors can result in big consequences.<\/p><\/li>\n\n\n\n
When you miss entering the record for a transaction, that is called an error of omission.<\/p>
For example, when you fail to enter the debit of payment to a vendor, it is an error of omission. Or you fail to record a credit when an invoice is paid.<\/p>
These errors may be unintentional, but they show a lack of seriousness in recording transactions. Also, this might happen when you must do various entries at a time. Sometimes this might occur due to the misplacement of documents.<\/p><\/li>\n\n\n\n
When an entry is made to the right account but the wrong subsidiary account or ledger, it is called an error of commission.<\/p>
For example, you receive money from a customer. You enter it as money credited, but the customer’s name is different.<\/p>
Similarly, when you are paying a vendor but recording it in another vendor\u2019s name, that is also an error of commission.<\/p><\/li>\n\n\n\n
When you compensate a wrong entry with another wrong entry, it is called a compensating error.<\/p>
To put it another way, suppose you wrongly overstate your income balance by $1,000, and you also increase the expense by $1,000. The net resultant value of income and expense will be even, but both entries here are incorrect.<\/p><\/li>\n\n\n\n
This error occurs when you reverse the numbers of an amount. Due to this reversal, the value may either be overestimated or underestimated.<\/p>
For example, you have to enter an expense of $946. But you wrongly entered the value as $496. The result? You will have a balance of $450.<\/p>
Such errors can cost you heavily if they go unnoticed. You have to be careful about such entries.<\/p><\/li>\n<\/ul>\n\n\n\n
Suggested Read: Best Free and Open Source Accounting Software<\/a><\/strong><\/p>\n\n\n\n Accounting errors, both minor and substantial, can result in dire consequences. Here is how types of errors in accounting can impact your business.<\/p>\n\n\n\n Miscalculated income statement:<\/strong> Misreporting expenses may mangle the computed operating profit margins of the company or over-report income.<\/p><\/li>\n\n\n\n Miscalculated cash flow statement:<\/strong> The incorrect reporting of items may overstate or understate the cash in hand amount to pay bills.<\/p><\/li>\n\n\n\n Miscalculated expense statement:<\/strong> If your accounts fail to record business expenses, it means you have not recorded the right deductible expense. The wrong statement will lead to overpayment of taxes.<\/p><\/li>\n\n\n\n Discrepancy in income and expenses:<\/strong> Unclassified statements may lead to a mishap in reporting accrual accounting for the company. You need to match the expenses with the generated income properly. In case you record the expenses in a different month or year, the report will not tally.<\/p><\/li>\n\n\n\n Fraudulent financial activities:<\/strong> When accounting books show serious discrepancies and wrong figures, it means something is wrong. It\u2019s time for the business to investigate the matter.<\/p><\/li>\n<\/ul>\n\n\n\n Financial mismanagement or fraud in any business is unfortunate. But more importantly, it can lead to profound consequences, including criminal proceedings and reputational loss for the business.<\/p>\n\n\n\n Suggested Read: Offline Vs Online Accounting Software \u2013 Quick Comparison<\/a><\/strong><\/p>\n\n\n\n If the accountant or the journal keeper is unmindful while entering the data, unintentional errors are bound to happen. Such errors may also result from outdated accounting software<\/a>.<\/p>\n\n\n\n It is revealed only when the companies do the book closing at the month-end. Some companies tally their accounts weekly to avoid piling up wrong entries.<\/p>\n\n\n\n In most cases, companies can correct their accounting errors without much hassle if they periodically recheck and re-verify every entry.<\/p>\n\n\n\n Here are some essential tips to avoid accounting errors and have an error-free account book.<\/p>\n\n\n\n Employees entering accounting data must understand it well, especially the accounting requirements of your company. Thus, ensure they are trained and have complete knowledge about your business needs.<\/p> You can also make a standard procedure and guidelines for proper documentation. This will ensure all entries are made accurately and timely. Likewise, you can have an expert who can oversee the whole work and help in avoiding major accounting errors.<\/p><\/li>\n\n\n\n Accounting data needs continuous update to keep a record of every expense detail. But overloading employees to stay updated is not a solution.<\/p> When employees are overburdened with work, they are more likely to make errors. Give them adequate time to keep all the books updated.<\/p> You can even find out new ways to make data entry simplified. Using the best accounting software for data entry is one of them.<\/p><\/li>\n\n\n\n These days, the market is flooded with accounting software with various features and advantages. You can use them to keep your account book up to date and error-free.<\/p> You can choose between desktop versions and cloud versions. Even smartphone versions can help small businesses maintain their accounts. This accounting software can even automate most of your manual entries, leading to fewer chances of errors.<\/p><\/li>\n\n\n\n Work on the approach to detect types of errors in accounting and correct them instantly. Conducting monthly bank reconciliations is one way to detect accounting errors early. Even for credit card statements, you can adopt a similar practice for tallying your transaction data.<\/p> Adopting internal control and checks will also prompt your employees to work meticulously. This will ease the burden on everyone\u2019s part.<\/p><\/li>\n\n\n\n You cannot rule out the chances of discrepancies between your budget and data entry. Hence, it\u2019s essential to tally your budget and expenses now and then. Doing so will give you a clear idea of financial activities.<\/p><\/li>\n\n\n\n Always conduct periodic reviews of your accounts. Ensure that the entries in account books are appropriate and meet the Generally Accepted Accounting Principles (GAAP) norms.<\/p> It may be a tedious task for manual bookkeeping to review every entry. But automated accounting software can make work easy to review your account entries.<\/p><\/li>\n<\/ul>\n\n\n\n Suggested Read: Best School Accounting Software to Manage Your School Finances<\/a><\/strong><\/p>\n\n\n\n<\/span>How Can Common Errors in Accounting Impact Your Business?<\/span><\/h2>\n\n\n
<\/figure><\/div>\n\n\n\n
<\/span>Tips to Avoid Accounting Errors by Small Businesses<\/span><\/h2>\n\n\n
<\/figure><\/div>\n\n\n\n