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What Are Accounting Errors?

Accounting errors are common mistakes that might occur during recording various
accounting entries. These errors are unintentional and not fraudulent in nature. But you need
to get rid of them to have a clear and error-free account statement.

A correct account statement is necessary to know the correct status of a business. The figures
help you know what exactly is happening in your business.

But it is important for many other reasons too. Getting the right tax figures and governmental
policy obligations are some of them. So altogether, having an error-free accounts book is
essential for every business.

Some accounting errors are small which may not lead to major discrepancies in your financial
statements. Meanwhile, some accounting errors may be too big to distort your financial
figures.

This article will discuss some common accounting errors and their impact on your business.
You will also get some tips to prevent such errors while keeping your account books up to
date.

Different Types of Errors

Your accounting system will be as good as the data you enter into it. These entries may go
wrong due to clerical mistakes or misunderstanding of the account rules. Broadly, all the
types of errors in accounting can be classified into the following categories.

1 Error of principle

When you apply a wrong accounting principle while entering any transaction into
your account book, it leads to an error of principle. In other words, a correct entry is
written in the wrong place.

For example, if you record your personal expenses as business expenses, you commit
an error of principle. Because your overall accounting will still have errors even if
you have recorded the right amount.
Remember that it is considered a serious procedural error. Such procedural errors can
result in big consequences.

2 Error of omission

When you miss entering the record for a transaction, that is called an error of
omission.

For example, when you fail to enter the debit of payment to a vendor, it is an error of
omission. Or you fail to record a credit when an invoice is paid.

These errors may be unintentional, but they show a lack of seriousness in recording
transactions. Also, this might happen when you must do various entries at a time.
Sometimes this might occur due to the misplacement of documents.

3 Error of commission

When an entry is made to the right account but the wrong subsidiary account or
ledger, it is called an error of commission.

For example, you receive money from a customer. You enter it as money credited, but
the customer’s name is different.

Similarly, when you are paying a vendor but recording it in another vendor’s name,
that is also an error of commission.

4 Compensating error

When you compensate a wrong entry with another wrong entry, it is called a
compensating error.

To put it another way, suppose you wrongly overstate your income balance by $1,000,
and you also increase the expense by $1,000. The net resultant value of income and
expense will be even, but both entries here are incorrect.
 5 Error of transposition

This error occurs when you reverse the numbers of an amount. Due to this reversal,
the value may either be overestimated or underestimated.

For example, you have to enter an expense of $946. But you wrongly entered the
value as $496. The result? You will have a balance of $450.

Such errors can cost you heavily if they go unnoticed. You have to be careful about
such entries.

6 Error of original entry

When you enter the wrong figures into an account book, it leads to an error in the
original entry.

Since various other transactions may occur after that, they will have erroneous values.
Finally, you will get the wrong value for all the transactions done after the wrong
entry.

7 Error of duplication

As the name suggests, such an error happens due to duplicate entries. That means
whether you are entering for a debit or credit, the same amount is entered twice. As a
result, your account book will show either more expense or income.

8 Error of entry reversal

Sometimes credit is entered as debit or vice versa. Such is called an error of entry reversal. Suppose
you have an invoice for $1500. You enter it as payable instead of receivable. That will lead to an
entry marked as an expense instead of an income