If you want to understand what is happening in your business or what things you need to take care of. The accounting system is the main key for managing the business. Even when you want to do tax return preparations, your accounting system will still pay a role. Here we will tell you about 3 common business accounting errors and how to avoid them.
Accounting system is the main thing that makes your business grow. It is very important to keep a check and balance on everything. You can keep an account on cloud, desktop or even on mobile phones. But make sure that it will not be deleted.
The more perfect the data you have entered, the more chances are there that you will avoid mistakes. You must make a proper account and add description and code in it. Moreover, you must add another person with you too that will help you in calculations etc.
Accounting errors do not occur by big mistakes, but they can be due to small mistakes too that you do not keep in mind. Even a difference of one point can lead to big mistakes.
Data entry and Omission errors
The first main type of error that may occur is data entry error. It occurs based upon how you entered the details. The mistakes that can occur are:
- If you entered a wrong account.
- Not checking the decimal place when noting numbers.
- Transposing the numbers.
- If you omit or duplicate any entry.
Suppose you did not enter an item. Like you skipped something. This is an error of omission that can occur.
Error of Commission and Transposition
Suppose you mishandled something in accounting by putting it in the wrong place. Suppose every detail you put was correct. Even the amount in general was also correct but you made a mistake in the sub-account. It can become the biggest error.
Similarly, suppose you wrote numbers reversely. As a result, it will cause overstating. The transposition of numbers can cause big mistakes. Suppose the amount was $234 and you wrote $432. Then it will become a big error causing problems in accounting.
Account Entry Errors
All these errors are considered under one term because they are related to each other and can cause major mis balances in accounting systems.
In compensating error, there are two major errors that occur at the same time and make big mistakes. These errors are difficult to check or detect because they make the net effect zero. Suppose you mistakenly add $500 income while it was only $300 and you also add some amount as an expense mistakenly. Then you can have major problems.
Another big error that can occur is duplication error. Suppose you wrote the same item or the expense twice in accounts. As a result, you will have mis balances in accounts. This error occurs when more than one person is handling the accounts and everything related to them.
Another error that comes following the above error is the error of principles. Suppose you noted an item that does not fit for GAAP. Then an accounting error can occur and cause big mistakes. This error usually happens when you make an entry in a wrong account. Although the amount and details you entered are correct but you placed them at the wrong side and as a result, error of principle can occur.
Suppose you entered an item in the wrong table or content. Like you treated an income as an expense. This error is an error of reversal. It is a sub error under error of principles and they are almost related to each other.
Below are the few tips for you if you want to avoid errors.
Training the staff
Suppose you are hiring a staff for entering the expenses and handling accounting. Then firstly, train the staff according to it. Explain them the whole setup and tell them each and every detail of the things you want to manage in accounts.
Make Your Employees Relaxed
Accounting errors can occur if you overload the employees. Do not give them a lot of activities to handle. Small tasks that are easy to manage must be given to employees. As a result, no or less errors will occur.
Use of Technology
You must also involve technology if you are handling the accounting systems. There are many software that will help you in managing accounting systems and accounts. Moreover, using cloud based systems will help you handle big data. Moreover, you can also add details about pay stub in a folder too.
These were the few common mistakes that people make in accounting. But everything comes up with a solution. If you have a perfect grip on how to manage accounts or you have good employees who can handle accounts. Then you can handle business easily.