Accounting Errors and How to Handle Them
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Accounting errors can be detrimental to your business. Even if they weren’t on purpose, they can throw off all business decisions and leave you with more tax liabilities and penalties than you realized.
If you notice an accounting error, you must correct it immediately. Here are the most common accounting errors and how to handle them.
Errors that Affect Trial Balance
Two common errors affect trial balance.
- Error of omission – When a bookkeeper only enters one part of a transaction, it can throw the trial balance off. For example, entering a debit without credit can make the accounts off balance.
- Error of commission – If a bookkeeper enters information incorrectly, such as entering a debit as a credit or vice versa, it throws the books off. Another example of an error of commission is mistyping a number.
Errors that Don’t Affect the Trial Balance
There are also critical errors that don’t affect the trial balance. They include the following:
- Omission – If an entry isn’t entered into the ledger, it’s an error. For example, missing an entire sale.
- Commission – Entering transactions in the wrong category or account is an error. For example, entering office supplies in rent is a commission error.
- Principal – Not entering a transaction correctly, such as treating an expense as an asset, is an error.
- Compensating – Two errors that override one another or wash each other out are compensating errors. They can be in two different categories but for the same amount on both sides.
- Original entry – Entering the wrong number in the proper category is an original entry error.
- Reversal – Entering the right amount for a transaction but switching the debit and credit is a reversal.
It’s important to know how to correct errors in the proper way, including the following:
- If a transaction was entered as a debit and should be a credit, enter a credit for the same amount
- If a transaction was missed, enter it as soon as you realize it
- If a transaction dollar amount was incorrectly entered, debit or credit the amount and then enter the transaction the proper way
Bookkeeping errors can be detrimental to your business, but it’s a fact of life. Rather than worrying about it, consider outsourcing your bookkeeping, so there aren’t any errors. If there are errors, you’ll have a professional who can find and correct them immediately.
Contact us today to see how we can help with your bookkeeping needs.