The account records a business possess gives them insight into business operations and progress to the investors and the stakeholders. These records are not only important for the external entities, but they are also important for the business authorities to make effective and quick decisions.
When the accounts records are not kept properly or have several mistakes, then the decision-making process will be badly affected. These mistakes may occur due to the incompetencies of the bookkeeper and the accountant or due to their negligence. You must make sure that the accounts you are recording are accurate and free of errors.
Keep scrolling down the article to know the types of accounting mistakes and the root causes of such mistakes.
Top 8 Accounting Errors You Need To Know
Errors in accounts and financial records are not something new. There are some mistakes in the accounts that arise due to some errors in recordings and calculating them. These records need to be entered and recorded carefully to avoid bigger financial problems for a business. These mistakes occurred are usually unintentional and honest.
Below are a few errors that lead to account imbalances for any business.
Daily transactions and records are recorded on a daily basis because these are key elements to determine daily expenses and profits. These transactions provide the basis for developing balance sheets and income statements. Any transaction entered wrong in the wrong account could bring imbalanced balance sheets. So make sure the transaction recorded are accurate and recorded in the right section. You can hire the bookkeeping and accounting firms in Dubai to maintain correct transaction records and develop correct financial statements.
Inventory change errors
Inventory updates and changes are very important for any business. These inventory records need to be changed every time inventory is added or removed. The addition of new items in the inventory means an increase in the assets, and the same amount needs to be added as an expense. Failing to add these amounts to the records will bring a huge number of imbalances in the inventory records, expenses, and assets.
Entries made twice
Writing a single entry twice at the same place or different places is also dangerous. These double entries increase the total number of expenses or the profits earned. Another drawback of writing these double entries is in the accounts payable. Consider you have to pay an amount of 10,000 to someone, and you mistakenly record it twice, making the payables equal to 20,000.
The type of mistakes and errors in entering the figures into your accounts are known as subsidiary entries. For example, you have an amount of 10,000 as an account receivable, and you mention it as 1000 in your accounts could bring a lot of differences to your accounts. To avoid such issues and errors, bank reconciliation is necessary; doing the reconciliation frequently will help you identify these mistakes on time.
Transposition and rounding errors
Errors that occur due to the swapping of digits or misplacing them are known as transposition errors in accounting. For example, you have to pay an amount of 1001, but you record it as 1000 in your accounts. Swapping these amounts will lead to increased expenses and lower-income rates for a business. Another mistake and error in accounting that occurs due to rounding the digits are called the rounding error. For example, an amount of 6323.6 is rounded to figure 6324 will create a lot of trouble. These errors usually arise because of wrong calculations or due to the accounting software.
Wrong data classification
For the ease of recording and retrieving data, it is very important to classify your data based on their characteristics and nature. Misclassifying the data could bring a number of difficulties for people accessing the data. This way, some of the information will be missed by an accountant while checking the entries of one section. Make sure you classify the data correctly and never miss any of the important entries.
Error of omission
As we have mentioned earlier, some of the errors arise due to writing wrong entries, but most errors that arise in accounts are omission errors. Not writing any entry at all is one of the biggest mistakes. For example, an amount is to be received, but you do not mention it in your accounts. These omitted amounts will increase the number of expenses, and the income rates will be lower. A similar mistake that happens is writing a debit amount but not writing an equal credit amount in your accounts.
There are some principles based on which financial statements and audits are performed. Following a wrong principle or not following a principle at all is one of the biggest mistakes in accounting. These errors are the only reason for not having balanced accounts and correct accounting records. Hire the bookkeeping and accounting firms in Dubai to help you keep your records safe while following the accounting principles.
Keep your account error-free!
For any business, the accounts records possess great value. These records must be free of mistakes and errors because a number of business activities depend on these accounts. You must go for every possible option to make your records accurate and reach the right people to keep these records updated correctly daily.