Understanding Accounting Errors, How to Detect and Prevent them

Understanding Accounting Errors

Accounting is a major aspect of maintaining our business well. It is necessary to make sure that our ‘books are in order’ so that we can keep track of the ‘money movements’ occurring within the organization. However, there are times when we ‘unintentionally’ end up with accounting errors. Keep in mind that this is different as compared to fraud, where the mistake is quite intentional.

The best part is that, once the error has been spotted, it can easily be rectified. The most common types of errors are clerical mistakes or errors of accounting principles.

What is Accounting Error?

Let us take a look at what the Accounting error is all about. As mentioned before these are unintentional bookkeeping errors that can at times be easily identified and fixed. For instance, if the debits and the credits do not add up, to the same amount as that in the trial balance. This is quite easy for an accountant or an expert to notice. As for the trial balance, well, it is a sheet that is used by the accountants to record the credits and the debit entries. These totals from the trial balances are later carried over to the financial statements at the end of the reporting period. But there are certain instances when the trial balance is not out of balance, yet there is an error in the account. This is where the trouble is at, and it is usually the ‘troublemaker’.

Read More-: Most Important Accounting Formulas

The Accounting Error Types

There exist various accounting error types, here are some of the major ones:

The Original Entry Error

This error typically occurs when the wrong amount is entered into an account. Likewise, the error posted for the wrong amount will also be reflected within any of the other accounts that are related to the transactions. Simply put, all the accounts involved will be in balance, but entered for the wrong amount.

Error of Duplication

This is the error type when the accounting entry is duplicated, essentially implying the fact that it is debited or credited two times for the same entry. For instance, an expense that has been debited twice for a similar amount will be the ‘error of duplication’.

Error of Omission

This is the error type when the entry has not been made despite the transaction has been occurred for that period. For instance, an accounts payable account which are short-term debts that are owed by the companies to the suppliers and the vendors, is not credited when the goods have been purchased on a credit. This is quite common when there are present various invoices from the vendors that have to be recorded, and the invoice is misplaced and not recorded properly.

The error of omission can also consist of forgetting to record the sale of a certain product to a client or revenue that has been received from the accountant’s receivables. As for the accountant receivables, this is referred to as the money reflected that is owned by the customers to the company for a certain product that is sold.

The Error of Entry Reversal

This is the kind of error when the accounting entry has been posted under the wrong position. This means that the debt was recorded as a credit or vice versa. For instance, the cost of the goods sold which also includes raw materials and inventory has been credited instead of debited. Likewise, a finished inventory has been debited instead of credited.

Error of Principle

This error typically occurs when the accounting principle has been applied in error. For instance, you purchased equipment and it has been posted as Operating Expenses. This operating expense implies the day-to-day expenses and does not include a fixed-asset purchase. Likewise, the asset purchased needs to be recorded within the balance sheet while the operating expenses need to be recorded on the income statement.

Error of Commission

This is an error that occurs when a debit or a credit is recorded by the bookkeeper to the correct account but under the wrong subsidiary ledger or account. For instance, the money that has been received from the customer and has been credited properly to the accounts receivable account, but over to the wrong customer. This error will reflect on the accounts receivable subsidiary ledger that included all the customer’s invoices and transactions.

Compensating Error

This is the error that has been compensated by an offsetting entry and is also considered an error. For instance, the wrong amount that has been recorded in the inventory has been balanced out by the similar wrong amount that has been recorded within the accounts payable to be paid for that inventory.

Detecting and Preventing the Accounting Errors

Certain unintentional accounting errors are common in case the journal keeper is not careful or the accounting software is outdated. Such errors usually occur when the month-end booking has been closed by the companies. Certain companies perform the tasks by the end of every week. Hence, most errors can be corrected quite easily. 

An audit trial is necessary if a material discrepancy has not been resolved quickly. Normally, experts recommend regular methods to handle immaterial discrepancies to create a suspense account within the balance sheet or net out the minor amount within the income statement as ‘other’. 

Also keeping track of the invoice to the customers and from the vendors and ensuring they have been entered immediately and accurately into the accounting software can help reduce clerical errors. Likewise, bank reconciliations can also help catch errors before the reporting period by the end of the quarter of the fiscal year. A bank reconciliation is essentially a comparison of the company’s internal financial records and various transactions to the bank’s statement records for the company. 

However, bear in mind that there are no companies that can prevent all the errors, but with the help of internal controls, these can be easily identified.

Also Read-: Sage 50 Errors List


So, there you have it people, these are some of the main aspects of Understanding Accounting Errors, How to Detect and Prevent Them. However, if you still have some doubts about the same, be sure to contact our experts at +1800-964-3096 or drop a main at [email protected] or join our LIVE sessions at www.accountingadvice.co

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Frequently Asked Questions

What are some of the main solutions how to prevent Accounting Errors?

Here are some of the top ways to prevent accounting errors:
🔹 Maintain an audit trail. If you’re looking for an easy method to track down accounting transactions and find errors, then an audit trail is a nice idea. 
🔹 Double-checking all your work. 
🔹 Maintain a consistent process.
🔹 To Conduct routine reconciliations

What are the Four main types of Errors?

The main types of errors are: Data entry errors, errors of commission, errors of omission and errors in principle

What is meant by Accounting Error?

The error within an accounting entry that has been made unintentionally. These errors can be fixed immediately. However, if there is no immediate resolution then investigation is required.

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