Subject

English III

Title of the paper

Types of Accounting Errors and How to Prevent Them

Author’s name
Luz Adriana Gallego Gallego
ID 689766

Teacher’s name
Liliana Lombana

Colombia, Guadalajara de Buga August, 25 2020

 Types of Accounting Errors and How to Prevent Them
BY  REVIEWED BY 
MARGARET JAMES GLENN TYNDALL Updated July 11, 2020

 
 You will make accounting errors from time to time, so knowing how to detect these
problems is an important skill to develop regardless of what accounting
software application you use in your small business. You will be able to detect
many errors by reviewing your company’s trial balance.

However, you will find that not all accounting errors affect the trial balance. For this
reason, it is important to learn about these types of accounting errors so you can
find and correct them. You should note that these types of errors are the most
difficult to identify and resolve.

Omission
An error of omission occurs when a transaction is completely omitted from the
books of your company. You may forget to enter an expense transaction or enter
the sale of a product or service. These transactions are difficult to detect.
Therefore, you need to make sure you have a solid routine for entering these
transactions timely.

The most common reason that these transactions are not entered is that the
documentation (such as a vendor’s invoice) gets lost. You are less likely to lose or
misplace these supporting documents if you enter them timely in your accounting
software system as soon as possible.

Reversal
An error of reversal occurs when a transaction that should have been posted as a
debit is posted as credit. For example, you may enter an invoice as a payment or
refund. You will not notice this error in your trial balance because the trial balance
will still be in balance.

Principle
An error of principle occurs when you or your bookkeeper wrongly applies an
accounting principle. You may expense assets that should be recorded as assets.
Assets and expenses are both recorded in the books as debits, so this is a
technical error.

Commission
An error of commission occurs you enter a transaction to the correct class but the
wrong subsidiary ledger. For example, you will commit this error if you apply a
payment to the wrong invoice. Your trial balance will show the correct amount
owed by a customer, but your individual customer’s subsidiary ledgers will be
incorrect.

Subsidiary Entry
An error of subsidiary entry occurs when an error is made when entering a
transaction. For example, if you loan a customer $5,000 but enter only $500 as a
loan and $500 withdrawal from your cash account, then you will find that this error
is carried to your trial balance. Your trial balance will be correct.

The most common method for detecting these errors is to conduct accounting
reconciliations. Continuing with the previous example, you would detect this error
when you performed your bank reconciliations. You would find that you would be
short $4,500 of cash in your bank account, and then would be able to correct the
error.

Prevention
You will have to develop good internal controls and processes to detect errors. For
example, you will want to make sure that all your forms are consistent so that
employees will get into a routine when entering information into your accounting
software. You will also want to ensure that you have enough staff to be able to
handle the workload. Understaffing will lead to employee fatigue, which will result
in worker fatigue, rushed work, and more accounting errors.
Detection
While you will want to develop methods for preventing errors whenever possible,
the errors listed above are going to happen from time to time. You cannot prevent
all errors from happening. You should conduct various reconciliations at month and
year-end to detect many errors so that they can be corrected.

Bank reconciliations, for example, should be performed monthly. Fixed assets may
be reconciled only annually so you can ensure that you have booked the correct
amount of depreciation expense.

You will find that if you look for ways to prevent errors and have a routine of
performing reviews and reconciliations of your accounting records that your
business will run smoothly and you will reduce the number of your accounting
errors.

Exercise
 1. After Reading the text Make a list about different verbal tenses that you find
in this reading with one or two examples.
Simple past
 these transactions are not entered is that the documentation (such as a
vendor’s invoice) gets lost
 when a transaction that should have been posted as a debit is posted as
credit.
 Assets and expenses are both recorded in the books as debits, so this is a
technical error.
 the errors listed above are going to happen from time to time
Simple present
 you use in your small business.
 it is important to learn about these types of accounting errors so you can
find and correct them.
Simple Future
 You will not notice this error in your trial balance because the trial balance
will still be in balance.
 You will find that if you look for ways to prevent errors and have a routine of
performing reviews and reconciliations of your accounting records

2. Make a list with the vocabulary related with your career

Accounting system
Software Reversal
Company
debit
Balance
credit
Transaction
invoice
Books
payment
Expense
refund
Product
Service
Assets
documents
Commission reconciliations

Class bank

Loan forms

cash account

Taken from: https://www.thebalance.com/difficult-accounting-error-detection-14081