Every business strives to maintain accounting accuracy, simply because without the critical information extracted from an accurate accounting system, your business wouldn’t be able to function efficiently or grow in the right direction.
So, how can you ensure accounting accuracy for your business?
One of the most effective ways is to understand what an accounting error is, become aware of the most common accounting errors, and know how to detect and correct them—which we’re going to share with you below in this article.
What are accounting errors?
Accounting errors usually refer to unintentional mistakes made when recording or posting entries.
Since it’s not done on purpose, accounting errors differ from accounting fraud.
The four most common types of accounting errors
Below are the most common accounting errors that you might encounter during the bookkeeping process:
1. Error of original entry
An error of original entry happens when an incorrect number is posted to the correct account.
Example: The correct figure of the transaction is $1000, but you enter $100 into the books.
2. Error of omission
When a transaction is completely or partially omitted from the accounts, it is called an omission error.
Example: You bought a new desk for the office, but you lost its receipt. At the end of the day, you go through the pile of receipts to enter records to the books—and you completely omit the desk purchase.
3. Reversal of entries
This kind of accounting error arises when you enter the correct amount to the correct accounts, but the account that should have been debited is credited or vice versa.
Example: Instead of debiting $200 to the Plant Maintenance account, you credited $200 to that account.
4. Error of principle
This error happens when you fail to comply with an accounting principle. This typically arises when you enter the correct figures to the wrong accounts.
Example: A building purchase is posted as a revenue expenditure while it should have been recorded as a capital expenditure.
You might also be interested in: Capital Expenditure: An Ultimate Guideline For Small Businesses.
How to detect and prevent accounting errors
To catch all the errors and maintain your business’s accounting accuracy, you should regularly perform bank reconciliations and scan your trial balance. During these processes, you will be able to spot the mismatched figures and make immediate corrections.
While accounting errors can occur for many different reasons, there are some preventative measures that you might want to try. These will reduce the number of accounting errors as much as possible:
- Build a consistent and transparent accounting procedure
- Always double-check your records (it’s best to have someone other than your accountant go over your records to increase integrity)
- Keep audit trails such as your purchase invoices, sales receipts, etc.
Though you can’t guarantee complete freedom from accounting errors by carrying out the above, they will definitely enhance your internal control and systemize your accounting process, making it easier for you to track errors and fix them.
Shoeboxed can help!
Shoeboxed is an online application that can transform your receipts and documents into a digital format in just a click. With Shoeboxed, you’re assured of having every audit trail stored securely and ready whenever you want to check your accounting records.
Steer clear of accounting errors easily with Shoeboxed NOW!