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Want to learn how to write the perfect journal entry? Check out our complete guide with practical examples.

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When you fail to record a transaction, you are committing an error of omission. This error is not intentional, it simply comes from carelessness.

Whether you misplace a receipt or simply forget to enter it, an oversight is usually difficult to find. The best way to avoid this is to have a reliable transaction entry routine.

Let’s say a $1,000 payment to a supplier is missed. After noticing the error, perform the following correction:

Use accounting software to integrate directly with your bank account so that every time a purchase or payment is made, a journal entry is automatically recorded in the correct journal.

Common Accounting Errors

When you’re dealing with a lot of numbers, your eyes can sometimes play tricks on you. Numbers are easily confused or reversed. This error is called a transposition error.

Although this mistake seems small, writing an expense amount of “$3,678” instead of “$6,378” can ruin your entire finances.

The good news is that there is a special way to check for transposition errors related to math and the number 9.

However, if the difference between these two numbers is divisible by 9, you probably have a transposition error.

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When you differentiate between the two, you get the $36 error. Since $36 divided by 9 equals 4, this could mean a transposition error has occurred.

A reversal entry error occurs when you enter a record instead of (or vice versa). The accounts and amounts are still correct, just placed the wrong way around.

It is quite simple to undo this error. The correction input should be twice the value of the previous error.

Also known as “false positives,” charge errors occur when you post the correct amount to the correct account but in the wrong subcategory.

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Let’s say you receive a payment from a customer. Now, if you save this receipt for other customer invoices, you have made a commission error.

Here’s how to correct the commission error if the $150 cash received from customer A is credited to customer B’s account.

In some cases, two faults can occur simultaneously and balance each other out. This is called a compensation error.

Since there is no net effect, this slippage can be one of the hardest to spot. Statistical analysis is the best solution.

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Errors in financial statements, whether related to revenue or expenses, can distort the idea of ​​how much profit a company makes. As a result, businesses can find themselves overspending, paying too much or too little tax, or even facing tax penalties.

When an error is noticed too late, additional charges may apply. For example, if you submit an invoice after the due date, you will be charged additional fees and interest.

Correcting errors is a time-consuming process. You may have to pay overtime to review and correct these errors.

When finances are riddled with errors, the business becomes vulnerable to outsiders. Whether the result of process inefficiencies or simple human error, customers and investors will always lose confidence.

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If you’ve been careful about your financial information from the start, you probably won’t have to worry about correcting it.

Fortunately, there are a number of steps that can ensure your business’s accounting process runs smoothly. Let’s check them one by one.

Consider reconciling your bank and credit card statements monthly. This way you can immediately notice errors and avoid them in your accounting.

Creating a budget is also a very important tool. Business expense planning not only helps you make more strategic purchasing decisions, but also helps you spot any misclassifications. You can compare budgets with actual spending to check that your finances are on track. Errors also usually occur along the way.

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We know it can be tempting to throw away your invoices and receipts once you’re done with them. But they serve as proof of your financial numbers. Also, in case the IRS audits you, it’s good to have a backup.

However, this doesn’t mean you have to keep them forever. We recommend retaining accounting records from the last three years for the protection of the business.

Overworked employees are an open door to mistakes. If you don’t give them the time and resources they need to complete their tasks, your business will soon be stuck with a paper clip.

Make no mistake, not falling behind is just as important. However, it is best to consider ways to simplify the accounting process, such as using accounting software.

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Manual accounting has become obsolete for a reason. Not only is this time consuming, but it also exposes your business to many potential accounting errors.

We offer the best business accounting software with all the features listed above – and much more. Starting at just $9 per month! We make small business accounting as easy as 1-2-3.

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