Accidental accounting occurs when the sum of both debit and credit entries fails to add up in the trial balance. In the accounting process, it is common to stumble into this point especially when the records are entered in a rushed manner.
Although they can be easily spotted and fixed, when not done early, it can lead to confusion and other problems later on. Whether your accounting process is in-house or outsourced, having a way to look for and prevent these errors will help your books remain clean and clear.
In this article, Archimedia accounts will show you how to spot accidental accounting and prevent it before it sabotages your finances.
Types Of Accidental Accounting
Before we find out ways to spot and prevent accounting errors, let us look at the common types of errors that exist in accounting.
- Duplication error – This is where an entry is entered twice for the same value either on the credit or debit side.
- Reversing error – This is when a debit entry is entered onto the credit side of the trial balance.
- Omission error – This error occurs when a transaction is not made even though it occurred in the same financial period.
- Principle error – This is where an accounting principle was made in error while entering an entry.
- Commission error – This is the error that occurs when an entry is made correctly but in the wrong subsidiary ledger.
- Transposition error – This is the error where a value is recorded in the right entry table but the digits are reversed. This might be 34 but typed as 43.
Spotting Accidental Accounting
Since errors are inevitable in the accounting process, there are ways to make sure these errors do not make their way into the business’s financial statements.
Conduct Routine Reconciliations
Reconciliation of accounts involves the manual comparison of an account and financial records. This can be a bank statement, receipts, credit card statements among others. Dedicating a day in a week or a month to comparing the entries between your account and one of the statements is key to ensure that subtle differences are corrected in due time.
Double-check Your Work
While entering the information from the financial documents and statements into your accounting software, make sure you go back and double-check your work. While the first look may have been hurried, going back and following through what you have typed will help you see where the figures have been mistyped or wrongly entered. Errors like transposition can be spotted and fixed immediately with this technique.
Seek Someone’s Confirmation
When working on something, especially looking at a screen with figures, can make you less vigilant to errors. It is necessary to get someone else to establish if the two records are consistent with one another. This will enable you to correct errors that would otherwise be assumed or forgotten.
Preventing Accidental Accounting
Once you have spotted several errors, it is necessary to formulate ways to help reduce the same errors. Although no business can achieve an error-free accounting process, the following tips can help reduce this immensely.
Keep An Audit Trail
The process of entering financial data can become cumbersome, especially when you have to go back and confirm a certain entry. Keeping an audit trail helps you to quickly refer to statements and financial documents you have with you, which prevents an accountant from making certain errors.
Follow A Consistent Process
When recording financial information in your accounts, ensure you follow a step-by-step system that allows you to remain consistent in the process. This process should guide you every time to ensure that fewer errors occur during the whole exercise.
Physical Audits Of Assets
Make sure that all fixed assets are counted without relying on word-of-mouth information. As an accountant, personally count every physical asset your business owns and enter this data as is to avoid errors from misinformation.
Keep Digital Copies
It is always important to have copies of an original transaction even if the receipt was lost. We advise that you store copies of these receipts and other important financial data in digital formats for future references. Since this form of data storage is safer than having physical copies, it ensures that things like fraud are spotted more easily than when there is no stored record.
The accounting process is tedious, but when done in an orderly manner and following set routines, it becomes smoother and more accurate. As an accountant, it is your responsibility to ensure that your business’s financial statements indicate the financial status as it is. This is important in making decisions that will propel the business forward.