Types of Accounting Errors and Ways to Avoid Them

Understanding how to discover accounting errors is essential so that you can prevent them when preparing financial (Also see Introduction to Financial Risk Management) statements. It is essential to understand these kinds of accounting errors so you will be able to discover and correct them. You shall keep in mind that these errors are difficult to determine and deal with. Thus, if you are unsure how to do it, do not hesitate to seek help from the experts in a bookkeeping firm in Johor Bahru.

Error of Reversal

An error of reversal takes place whenever a transaction that is supposed to be recorded as a debit is recorded as a credit. You might not be able to discover this mistake easily in your trial balance due to the trial balance will remain in balance.

Error of Omission

An error of omission takes place whenever a transaction is left out of the company’s (Also see The Purpose and Use of Financial Ratios in Analyzing a Company’s Performance) books. You might forget to record the sale of a service or product or an expense transaction. These transactions are hard to discover. Consequently, you should ensure you have a routine periodically for recording these transactions. One of the most usual reasons these transactions aren’t recorded is that the documents (like a supplier’s invoice) get lost. If you have a proper payment workflow, you are less likely to misplace or lose these supporting documents.

Error of Subsidiary Entry

A subsidiary error takes place when a mistake is made whenever recording a transaction. For instance, if you lend a customer RM5,000 but record only RM500 as a loan and RM500 withdrawal from the cash account, you might not detect this mistake since the trial balance will still be balanced (Also see Accounting – Closing Balance).

One of the most common methods for discovering these mistakes is to perform accounting reconciliations. You could detect the error (Also see Types of Accounting Errors) when you carried out your bank reconciliations. You will discover that you will be short RM4,500 in your bank.

Ways to Avoid Them:

Avoidance

You will need to establish good internal controls to discover errors. For instance, you should ensure that all your forms are the same so that staff members will get into a routine when recording details. Understaffing might cause employee fatigue, rushed work, and more accounting mistakes. You would also need to make sure that you have sufficient staff members to manage the work.

Detection

The errors listed above are most likely to occur when you intend to establish methods for avoiding mistakes. You could not avoid all mistakes from occurring. In another way, you need to carry out reconciliations periodically to discover the mistakes so they can be corrected.