Types of correction of errors in accounting need to be understood so that financial reports can remain accurate. In addition, correcting certain types of errors also helps to keep financial reports reliable and trustworthy. Not only to comply with accounting standards but the following types of error corrections also prevents wrong decisions.
9 Types of Correction of Errors in Accounting
- Transposition Errors
Transposition error is a mistake in copying numbers, such as numbers being swapped in order when recording finances. Typos can occur due to hasty recording, negatively affecting business decisions and mismatching the final amount in the general ledger. Find the errors immediately by checking the journal, then make corrections and check again.
- Subsidiary Entries
Financial records in subsidiary ledgers can also experience errors, such as wrong dates, amounts, and customer names. To correct it, you need to match the data with the original documents (notes and invoices or proof of transactions). Then check and compare this subsidiary ledger with the general ledger to ensure the error.
- Omission Errors
Another type is omission error, which is a transaction that isn’t recorded at all because it was missed or forgotten. Because of this error, financial reports are inaccurate, account balances aren’t in accordance with reality. and detrimental to decision making. In this case, quick steps are needed to find missed transactions and record them as soon as possible.
- Rounding Errors
Understanding accounting errors helps you correct them more precisely, such as rounding errors type of correction of error. These errors occur due to rounding numbers, such as decimals making the final amount can be slightly different. It must be identified and recorded using a small adjustment account to not damage the accuracy of long-term data.
- Reversal Errors
Reversal errors are errors in accounting when you mix up the debit and credit recording. The entire transaction is recorded, only the debit and credit are reversed, causing difficulty in reconciliation and inaccurate financial reports. To avoid a cash deficit in this case, reverse the error and continue with the correct transaction recording.
- Compensating Errors
In this error case, you’re making records that cover each other up resulting in a miscalculation of profit/loss. There’s a transaction recorded in the debit but is excessive, while the transaction in the credit is also excessive. Even though the balance looks balanced, find the error and fix it immediately to not be misleading during the audit.
- Commission Errors
Accounting errors and errors correction are important to understand, such as commission errors by entering transactions into the wrong account. Usually this happens with an example, the account name is correct but the name of the person/place is wrong. Or there could also be a principle error such as recording should be on expenses but entered into assets.
It seems trivial because you just have to correct it after finding the error, but this risks problematic reconciliation. Chaos can also occur in the balance of each supplier/customer and even bills are sent to the wrong person. To fix it, simply move the balance from the wrong account to the right one.
- Data Entry Errors
Errors in entering data into an accounting journal are called data entry errors which can be caused by typos. Not only errors in typing the number of numbers, typing the wrong date is also considered an error. If not immediately rechecked and the error is found, the financial report will not be considered accurate.
Types of correction of errors in accounting examples include data entry which if not corrected makes reconciliation difficult. The problem is, the balance can be too much or too little from reality and cause errors in decision making. Find the wrong data, check the original transaction evidence, and make corrections with a reversing journal.
- Reconciliation Errors
Problems at the reconciliation stage occur when matching two financial records but the final results don’t match. Difficulties in the audit process can be the result of inaccuracies in the financial statements. To correct, compare the two reports in detail to find the differences, then create a corrective journal entry if needed.
Types of correction of errors in accounting are needed to ensure that the report reflects the actual financial condition. The existence of corrections is also useful in disclosing fraud that may have previously been unknown or hidden. In this way, the trust of external parties can also be maintained properly.
