10 common types of errors in accounting
Bookkeeping

10 common types of errors in accounting

Accounting errors can throw a major wrench in your plans if they go unnoticed. 

How can accounting errors affect your business? Accounting problems can lead to incorrect financial statements, bills or payroll that go unpaid, or a false portrayal of your business' financial health. These errors can be costly and can cause significant damage to a company of any size.

This guide maps out 10 common accounting errors, including the signs to look out for, how to prevent them, and what impact they can have on your business.

10 easy-to-make bookkeeping mistakes
  1. Data entry error
  2. Omission error
  3. Duplication error
  4. Transposition error
  5. Compensation error
  6. Principle error
  7. Entry reversal error
  8. Closing error
  9. Reconciliation error
  10. Misuse of accounting software


Finding and eliminating accounting errors

You want to find and eliminate accounting errors as soon as possible, which means regularly tidying up your books. Double-checking your work is the best way to catch problems in accounting or bookkeeping. Take the time to check your work to locate any potential errors that might’ve occurred. Also try:

  • Comparing to previous reports to locate discrepancies.
  • Using software to set up and check equations.
  • Asking a colleague to look over your work.
  • Comparing your accounting records to bank statements.
  • Checking your trial balance for any discrepancies.
  • Working with a bookkeeper to clean up your books and identify errors.



How to prevent accounting errors

Preventing accounting errors before they happen can save you time and keep your book clean. There are a few methods you can use to help reduce and prevent errors before they happen. Try:

  • Using an accounting software program like QuickBooks Online to automate the process.
  • Double-checking all entries as you work.
  • Going for accuracy instead of speed; don't rush the process.
  • Setting a password or locking the entries after you close the books to prevent unintentional changes.
  • Working with a bookkeeper, like QuickBooks Live Expert Assisted, to help you maintain your books.*
  • Consulting with an accountant when changes happen in your business that have significant accounting implications.

We’ll explore these solutions and more as they pertain to each error in the sections below.

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1. Data entry errors

Data entry accounting errors occur when inaccurate data or information is entered in your books. The integrity of your data is vital to have the correct information in your accounting system. Data entry mistakes can include:

  • Entering an incorrect number.
  • Entering the correct number in the wrong order.
  • Entering numbers instead of words, or vice versa.

Potential impact

The potential impact of a data entry error can vary from something minor to a major mishap, such as underpayment or overpayment of a vendor.

Error signs

Data entry errors can compound to create more problems down the line. These signs can indicate a data entry error:

  • The trial balance is off.
  • Reconciliation is off.
  • Records don't match bank statements.

Solutions

You can solve and prevent data entry errors in a number of ways.

  • Double-check entries.
  • Use accounting software to automate the process and reduce manual data entry.
  • Aim for accuracy, not speed.
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2. Omission errors

An omission error, or a false negative, is the accounting problem of forgetting an entry like a purchase or sale.

Potential impact

Forgetting to enter a transaction compromises your data integrity. That entry could be an employee's salary or a budgeting item used to make an important financial decision.

Error signs

To check whether an entry is missing from your books, go through this checklist:

  • Identify accounting records that don't match bank statements.
  • Look for discrepancies in the trial balance.
  • Find mismatched checks and balances.

Solutions

The same data entry error solutions also apply to omission errors:

  • Double-check entries.
  • Use accounting software to automate the process.
  • Aim for accuracy, not speed.

3. Duplication errors

Duplication errors are the result of entering an income or expense entry twice.

Potential impact

Duplication errors can have a substantial impact on your accounting system or any outcome, depending on what entry was duplicated. It's possible to duplicate anything from credit or debits on a purchase order to paychecks.

Error signs

Duplication errors can be one of the easier errors to spot in accounting. A few signs to look out for are:

  • Showing more than usual on the books.
  • Checks and balances don’t match up.
  • Bank statements don’t match your records.

Solutions

Return to basic best practices to prevent and resolve duplication errors:

  • Double-check entries.
  • Use accounting software to automate the process.
  • Aim for accuracy, not speed.
Preventing accounting errors

4. Transposition errors

Transposition errors are the result of reversing two digits that were entered back-to-back. Serious financial consequences can result from a transposition error, such as paying an employee $8,268 instead of $2,868.

Potential impact

The potential impact of transposition errors varies depending on the entry, but they could result in a loss of funds for your business.

Error signs

Transposition errors can be tricky to catch. Signs of a transposition error include:

  • Showing more or less than usual on the books.
  • Checks and balances don’t match up.
  • Bank statements don’t match your records.

Solutions

Prevent and find transposition errors with bookkeeping best practices:

  • Double-check entries.
  • Use accounting software to automate the process.
  • Aim for accuracy, not speed.

5. Compensation errors

A main part of the accounting process is payroll, and paying your employees correctly needs to be a priority. Though uncommon with automated tools, compensation errors do happen.

Potential impact

Overcompensation isn't good for your bottom line. More importantly, under-compensation in particular can hurt your relationship with employees. Employees want to trust they will be paid correctly and on time. Too many incorrect paychecks can break trust in your accounting system or your business as a whole. In fact, a survey by QuickBooks showed that 1 in 6 small business employees said a single inaccurate paycheck would make them quit their job.

Error signs

Your goal is to find compensation errors before payroll is run. Otherwise, you might be hearing about the errors from your employees, themselves. If the current payroll amount varies significantly from previous payroll periods, take another look at compensation.

Solutions

Compensation errors are generally a quick fix if caught soon enough. To prevent these errors:

  • Double-check entries.
  • Use accounting software to automate the process.
  • Aim for accuracy, not speed.
  • Compare the current payroll to the last pay period; identify any large swings up or down, especially if your employees have fairly consistent schedules.

6. Principle errors

Another accounting error is a principle error, where an accounting entry violates a fundamental accounting principle.

Potential impact

An example of a principle error is buying a piece of equipment and miscategorizing the expense as a sale instead of a purchase. This can throw your books out of balance, compromise the accuracy of your financial statements, and, if not caught, affect your tax liability.

Error signs

Principle errors can take some investigation to discover. They can often be found when preparing financial statements for the quarter. There might also be mismatching debits and credits or errors when transferring data from the income statement to the cash flow statement.

Solutions

To prevent and solve to errors of principle:

  • Have checks and balances in place prior.
  • Correct your categorizations.
  • Check the final accounting report for discrepancies.
  • Work with a bookkeeper who's familiar with accounting principles and how to properly record transactions.

7. Entry reversal error

Entry reversal errors closely resemble principle errors; however, entry reversal is the result of entering transaction data in the wrong direction. In other words, a credit was debited or debit was credited.

Potential impact

Entry reversal throws off the accuracy of your books and financial statements. For instance, say you record a debit as a credit. When it comes time to balance the books, your assets include an additional amount that doesn’t exist and your liabilities are short an expense.

Error signs

Signs of entry reversal errors include showing additional income or expenses. This happens because an entry was incorrectly categorized as either a credit or debit.

Solutions

To prevent and solve this bookkeeping problem:

  • Double-check entries.
  • Use accounting software to automate the process.
  • Aim for accuracy, not speed.
Eliminating accounting errors

8. Closing error

A closing error occurs when entries are added or changed after you've closed the books. Closing the books means that all data has been entered and accounts are reconciled for a specific time period.

Potential impact

Making changes to financial data after the close date could result in future problems for reconciling your books and generating accurate financial statements. At the least, posting a new transaction after the closing date requires you to repeat the closing process again.

Error signs

If you find a new or updated transaction after the closing date, you likely have a closing error on your hands. It means a new close has to be processed.

Solutions

You can prevent closing errors by setting a closing password in your accounting software. This way, only one person has the power to make changes after the close.

9. Reconciliation error

Reconciliation errors are discrepancies between your books and your bank account statements. You can discover them during the process of reconciliation, when you match actual account balances with the balances on the books. Ideally, you reconcile your books each month.

Potential impact

Reconciliation errors can create an inaccurate financial record for your business, which is particularly important come tax time. Leaving transactions unmatched can also prevent you from realizing that your business is missing money.

Error signs

Reconciliation allows you to validate the entries in your books, like a double-check before closing. If the balances don't add up or you have an unmatched entry, you likely have a reconciliation error. 

Solutions

Go to your books and perform the reconciliation process once more, making sure you check all account entries in the process. Look out for duplicated transactions or missing entries that might have thrown your books off balance. Software like QuickBooks can make it easier for business owners to keep entries organized so reconciliation is simpler. QuickBooks automatically matches credits and debits between your books and the bank.

10. Misuse of accounting software

Financial tools like accounting software make bookkeeping simpler, but they still need attention to keep errors out of the system. Errors in your accounting software can be introduced by things like setting up your books incorrectly, not syncing with third-party applications, or failing to check work that's been automated.

Potential impact

Misused or missing information can throw your books out of balance, creating an inaccurate financial record for your business. With AI-powered automations and data synced from third parties, such as banks or payment platforms, errors can be introduced if you don't stay on top of your books. The impact of any error can compound if it's not identified quickly.

Error signs

If syncing with apps has stopped, accounts don't balance, or entries are miscategorized, it's possible there’s been a misuse of accounting software.

Solutions

Double-check your bookkeeping regularly to avoid accounting software errors. Check settings in your accounting software and any connected third-party apps to get syncing up to date, then verify that the imported data is correct. You can also take some of the pressure off with services like QuickBooks Live Expert Assisted to get expert help automating tasks and guidance on best practices.* Tap an expert to help you set up your books correctly for your business. 


Solutions to accounting errors

There are many ways to prevent and spot accounting errors before they can slow you down. To avoid accounting errors, use bookkeeping best practices and always double-check your work. 

Find peace of mind with QuickBooks Live Bookkeeping

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*QuickBooks Live Expert Bookkeeping requires QuickBooks Online subscription. Additional terms, conditions, limitations, and fees apply.


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