It is always better to be proactive and have a system in place to record each transaction. Omission errors usually occur when a company uses cash for smaller expenses to pay its bills. To avoid this, save all your receipts and documents and set aside a regular time each week to enter the data. An error in the original entry occurs when an incorrect amount is entered into an account.
This error would also be reflected in any of the other accounts related to the transaction, meaning that all the accounts involved would be out of balance due to the wrong amounts. A duplication error happens when an accounting entry is duplicated, meaning that it is debited or credited twice for the same entry. For example, if an expense were debited twice for the same amount, it would be a duplication error. An omission error occurs when an entry was not made even though a transaction occurred during the period.
This could include forgetting to record the sale of a product to a customer or the income received from accounts receivable. Accounts receivable reflect the money that customers owe to a company for the products sold. The reversal of registration error occurs when the accounting entry is recorded in the wrong address, which means that a debit was recorded as a credit or vice versa. For example, if the cost of goods sold, which contains raw materials and inventory, is credited rather than debited, and finished inventory is debited rather than credited, it would be a reversal of registration error.
The commission error is an error that occurs when an accountant or accountant records a debit or credit in the correct account, but in the wrong subsidiary account or general ledger. For example, money that has been received from a customer is correctly credited to the accounts receivable account, but to the wrong customer. The error would appear in the subsidiary ledger of accounts receivable, which contains all customer invoices and transactions. A payment to a supplier registered as an account payable, but to an incorrect invoice or supplier is also a commission error.
The error would appear as recorded in the name of the incorrect supplier in the subsidiary's accounts payable ledger. The compensation error occurs when an error has been compensated by a compensation entry that is also erroneous. For example, if the wrong quantity is recorded in the inventory and is offset by the same incorrect amount that is recorded in the accounts payable for that inventory, it would be a compensation error. Because accounting errors can disrupt your business operations, all small businesses should be aware of the most common types of accounting mistakes so they can be easier to detect and correct.
Whether you're handling your own accounting or outsourcing it to a professional, accounting errors can cause significant problems for your business. To help you avoid financial problems, here are six of the most common accounting mistakes that business owners make and how to avoid them: Investing in suitable accounting software can help you avoid mistakes and ultimately make it easier to manage your finances; forgetting to report transactions to your accountant or saving too much for later and then losing control of your own accounts; not recording data either to avoid reporting expenses or adjusting inventory quantities; using outdated accounting technology and software; not being careful when entering journal entries; and not comparing bank statements with your books on a regular basis. New accounting technology and software have made accounting easier for small and medium-sized businesses, but have not completely eliminated costly accounting errors. To help you prevent these financial mistakes, make sure you invest in good accounting software, report all transactions to your accountant on time, record all data accurately, use up-to-date technology and software, double-check journal entries before submitting them, and compare bank statements with your books regularly.