Types of Errors in Accounting: A Guide for Small Businesses

accounting errors

If you reconcile your books and realize there is a discrepancy, it can be hard to tell where you went wrong. How do you track down the error, fix it, and prevent it from happening again?

Before you pore over every statement and transaction, it can be helpful to know the types of accounting errors a typical small business may incur.

Missing Transactions

Failing to enter all of your transactions is a common mistake in accounting. Maybe you lost a receipt or forgot to copy an invoice before giving it to a customer. You’ll find out if you’re missing transactions when you reconcile your credit card and bank statements. If the balance doesn’t match your records, you’ll need to trace the missing figures.

Transcription Errors

Manually entering in numbers from a receipt or invoice means the possibility of human error. Numbers may be incorrectly transcribed, digits missing, or numbers transposed. These errors can be difficult to spot when scanning columns of data, so double and triple check your entries.

accounting errors

Rounding

Accounting is exact, but currency is not. Sales taxes in many states are not whole percentages, which creates fractions of pennies that have to be rounded on invoices. If you round in the customer’s favor, the sales tax due will be incorrect. Rounding also occurs on tax filings since the IRS wants whole dollar reporting. Interest calculations can create fractions as well.

Recording Personal Expenses as Business Expenses

Separating business and personal expenses sounds easy in theory, but in the real world your business becomes your life. You stop at the grocery store for the week’s groceries and you throw in break room supplies to save an extra trip. If you don’t separate the orders, you may not remember which expenses were for business and which were personal.

Occasionally, personal expenses can be misfiled as business costs and vice versa.

Best practices are to pay for business expenses separately using a business account debit or credit card. This will make the delineation easier and result in less chance for mix-ups.

Incorrect Math

Adding a figure instead of subtracting (or the opposite) happens more often than you’d think. An invoice payment might incorrectly be recorded as an expense. These types of errors should be pretty obvious because your bank statements will not match up right away. It doesn’t help that the terms for these categories are so similar. Accounts payable/accounts receivable and credit/debit are easily transposed if you’re in a rush.

accounting errors

How to Fix Accounting Errors

A one-off accounting error can easily be fixed, but if you’re finding multiple errors and discrepancies, you may need to hire a new bookkeeper. Analyzing books and correcting mistakes is a serious waste of your company’s time and money. Prestige Bookkeeping Services is a powerful team of small business specialists with the precision and know-how to help you avoid common accounting pitfalls. We can examine your books to look for errors and help you to correct them. Even better – when you work with us on a regular basis, you won’t have to worry about accounting mistakes at all!

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