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5 Common Types of Errors in Accounting?

In the event that accounting errors go unnoticed, they can wreak havoc on your plans.

How can accounting errors affect your business? Errors in accounting can result in inaccurate financial statements, unpaid bills or payroll, or inaccurate portrayals of your business’ financial health. This type of error can be extremely costly and can cause significant damage to any business.

You’ll learn how to identify and prevent 10 common accounting mistakes, as well as the impact they can have on your business in this guide.

Errors in accounting and their elimination

In order to find and eliminate accounting errors as quickly as possible, you should regularly keep your books clean. Take the time to double-check your work to find any potential errors that might have occurred in accounting or bookkeeping. You can also try:

  • Finding discrepancies in previous reports.
  • Setting up equations and checking them with software.
  • Reviewing your work with a colleague.
  • Checking your accounting records against your bank statements.
  • Making sure there are no discrepancies in your trial balance.
  • Cleaning up your books and identifying errors with a bookkeeper.

Accounting Errors: How to Avoid Them

  • A few methods can help you reduce and prevent accounting errors before they occur. Try these to help reduce and prevent errors.
  • Automating the process with accounting software such as QuickBooks Online can cause a QuickBooks error or accounting error.
  • As you work, double-check all entries.
  • Don’t rush the process; go for accuracy instead of speed.
  • After you close the books, set a password or lock the entries to prevent unintentional changes.
  • Maintain your books with the help of a bookkeeper, such as the QuickBooks Live Bookkeeping experts.
  • Whenever changes in your business have significant accounting implications, consult an accountant.

As we explore each error, we’ll explore these solutions and more.

Data entry errors

You must maintain the integrity of your data in order to have the correct information in your accounting system. Examples of data entry accounting errors are:

  • Incorrectly entering a number.
  • Incorrectly entering the correct number.
  • Using numbers instead of words, or vice versa.

Impacts possible

Underpayment or overpayment of a vendor can be the result of a data entry error.

Signs of an error

There are several signs that indicate a data entry error that can compound to create more problems down the road.

Providing solutions

Several methods exist for solving and preventing data entry errors.

  • Make sure all entries are correct.
  • Reduce manual data entry by automating the accounting process.
  • It is more important to aim for accuracy than speed.

Omission errors

Omission errors, or false negatives, occur when an entry is forgotten, such as a purchase or sale.

Impacts that might occur

Leaving out a transaction compromises the integrity of your data, whether it’s an employee’s salary or a budgeting item.

Signs of an error

Check your books to see if any entries are missing:

  • Recognize discrepancies between accounting records and bank statements.
  • Analyze the trial balance for discrepancies.
  • Check for mismatches between checks and balances.

Providing solutions

Omission errors can also be solved using the same data entry error solutions:

  • Make sure all entries are correct.
  • Automate the process with accounting software.
  • Rather than focusing on speed, aim for accuracy.

Transposition errors

There can be serious financial consequences associated with transposition errors, such as paying an employee $8,268 instead of $2,868 because two digits were entered back-to-back.

Impacts possible

It depends on the entry, but transposition errors could result in your business losing funds.

Signs of an error

There are many signs of a transposition error. These include:

  • The books are showing more or less than usual.
  • The checks and balances don’t match.
  • Your bank statements don’t match your records.

Providing solutions

With bookkeeping best practices, you can prevent and find transposition errors:

  • Make sure all entries are correct.
  • Automate the process with accounting software.
  • Rather than aiming for speed, aim for accuracy.

Errors in compensation

The accounting process includes payroll, and paying your employees correctly is a priority. Though uncommon with automated tools, compensation errors do occur.

Impacts possible

It’s not good for your bottom line to overcompensate. Under-compensation, in particular, can hurt your relationship with employees. They want to know they will be paid accurately and on time. In fact, according to a survey by QuickBooks, 1 in 6 small business employees would quit their job if they received an inaccurate paycheck. In fact, too many incorrect paychecks can break trust in your accounting system.

Signs of an error

If the current payroll amount varies significantly from previous payroll periods, take another look at compensation. Otherwise, you might hear about errors from your employees.

Providing solutions

In most cases, compensation errors can be corrected quickly if they are caught early enough. To prevent these errors, take the following steps:

  • Make sure all entries are correct.
  • Automate the process with accounting software.
  • Rather than focusing on speed, aim for accuracy.
  • Check your current payroll against your last pay period; identify any large swings up or down, especially if your employees have fairly consistent schedules.

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