By Analytix Editorial Team
Financial and accounting work needs extra attention to maintain accuracy. Even a small mistake can jeopardize the entire business. In addition, government regulations make us ensure that books are clear, clean, and error-free to avoid penalties and tax fraud.
From debit to credit and receivables to payables, every entry should be recorded correctly under the right account with the correct data. Even with a firm process in place, errors occur in accounts, bookkeeping, and financial records because of human or technical errors.
While we know that we are all human at the end of the day, however this can be greatly reduced if you set processes in place to ensure the same procedure is followed or use technology to eliminate some of the human work. Whatever the approach you take, preventing common accounting errors will position you for success. Here are some of the most common mistakes made while maintaining books and accounts to keep an eye out for.
Common Accounting Errors
Each record should be recorded in the correct account including asset, debit, or credit. When you mistakenly record a transaction under the wrong account, even if all the details are accurate, this is an error of principle. This kind of transaction does not meet the Generally Accepted Accounting Principles (GAAP).
This error occurs when you add an amount in an account other than its original one. For example, you record a transaction of $100 into account receivables instead of account payables. It is important to adjust this amount to solve this error.
When you record the same transaction (debit or credit) repeatedly, it leads to duplication. This normally happens when you have different people managing books. Communicate with your team and keep them updated about each transaction so that transactions are not recorded more than once.
This error happens when you disorder two numbers, for example, when you record $46 as $64 or 1564 as 1654. This type of error can be costly to your business, and it can show losses. In addition, this kind of accounting error is difficult to locate, so be careful when you record transactions.
This happens when you enter all the correct details, from the right amount to the general account, but you choose the wrong sub-accounts. For example, if you receive a payment from a vendor, you may record this payment in a customer’s account.
This happens when you forget to enter the transaction. These kinds of accounting errors are not part of any books. It is important to find missing details and adjust accordingly. Consider all invoices, receipts, checks, and bills to assist in solving errors of omission.
Prevent Common Accounting Errors
Correcting entries with journal entries can resolve accounting errors. Doing so will adjust debit and credit with a new entry to record profit and loss of the business. Adjust both debits and credits when correcting errors. Check your trial balance, compare bank statements with accounting records, and complete bank reconciliations if necessary.
The most common tactic to verify accuracy in accounting is to make sure the credit and debit amounts are the same. You can have peace of mind if you find the same amount on both sides, whereas if you find different amounts, something is wrong.
Ensure that debit and credit are balanced, and then compare them to a bank statement. If your balance and bank statements are showing different figures, then there is a mistake in recording a transaction. Cross check each entry to uncover the mistake.
Good Practices to Prevent Accounting Errors
The above practices can save you time and help maintain accuracy however, if you are having a hard time managing your books, you can also consider accounting outsourcing. Outsourcing will help you to save money, time, and will provide proper business insights. Professional assistance can help you deal with errors better and faster so that you don’t spend hours and hours sorting through data to find the problem.