Omissions
An omission error occurs when a transaction is completely overlooked in the company’s records. You might forget to enter an expense or to record a sale of a product or service. These transactions can be difficult to detect. Therefore, you should ensure that there is a strong routine for entering these transactions in a timely manner.
One of the most common reasons for failing to enter these transactions is the loss of documentation (such as a supplier invoice). It is likely that these supporting documents will be lost or misplaced if you do not enter them into the accounting software system as quickly as possible.
Reversal
A reversal error occurs when a transaction that should be a debit is recorded as a credit. For example, you may record an invoice as a payment or a refund. You will not notice this error on your trial balance because the budget balance will still be balanced.
Principle
A principle error occurs when an accounting principle is applied incorrectly. For instance, you might record assets as expenses. Assets and expenses are both recorded on the ledger as debits, so this is considered a technical error.
Commission
A commission error happens when a transaction is entered into the correct category but into the wrong subsidiary ledger. For example, if you apply a payment to the wrong invoice. Your balance in the trial balance will reflect the correct amount due from the customer, but the individual subsidiary customer records will be incorrect.
Sub-entry
A sub-entry error occurs when a mistake is made while entering a transaction. For instance, if you lend a customer $5,000 but only enter $500 as the loan and withdraw $500 from your cash account, you will find that this error carries over to the trial balance. The trial balance will be correct.
One of the most common ways to discover these errors is to conduct accounting reconciliations. Continuing with the previous example, you will uncover this error when you conduct bank reconciliations. You will find that you are short by $4,500 in cash in your bank account, and then you can correct the error.
Prevention
You will need to develop strong internal controls and processes to detect errors. For instance, you will want to ensure that all your forms are consistent so that employees can enter information into the accounting program regularly. You will also want to make sure you have enough staff to handle the workload. Insufficient staffing will lead to employee fatigue, which can result in tired workers, rushed work, and increased accounting errors.
Detection
While you will want to develop methods to prevent errors whenever possible, the errors mentioned above will occur from time to time. You cannot prevent all errors from happening. You should conduct various reconciliations at the end of the month and at the end of the year to detect many errors so they can be corrected.
Bank reconciliations, for example, should be conducted monthly. Fixed assets may only be reconciled annually to ensure that you have recorded the correct depreciation amount.
You will find that if you seek ways to prevent errors and have a routine for conducting reviews and reconciliations of your accounting records, your business will run smoothly, and the number of accounting errors will decrease.
FAQs
What are bookkeeping errors?
Bookkeeping errors is another term that generally refers to accounting errors. It pertains to any mistakes in the accounting books.
How are accounting errors corrected?
The method of correcting the error will depend on what type of error occurred. Sometimes, the fix can be as simple as correcting a typo in a spreadsheet before anyone else notices it. In other cases, you may need to inform others of the error while correcting it. For example, if a significant error is reported in the official financial statement, you must re-issue those documents with the corrections made.
Source:
https://www.thebalancemoney.com/difficult-accounting-error-detection-14081
Leave a Reply