Most business owners keep making accounting errors – big or small. It is necessary for every person managing accounts to be well aware of these mistakes, whether you use software-based accounting or pen and paper for your small business accounting services in Mesa. The first and foremost method of detection is to crosscheck the trial balance.
However, there are various types of errors that do not have any effect on the trial balance. Hence, it becomes necessary that you educate yourself about the accounting errors and ways to rectify them. Also, note that such errors are relatively difficult to spot.
Your accounting method determines a lot about your business. Well-maintained accounts come in handy at the time of income tax filing and other government obligations. That is the reason getting things right is fundamental. Sadly, regardless of whether you utilize cloud-based or pen and paper accounting, mistakes can occur. Hence, understanding how common errors can become troublesome and how they affect your business is significant. It means knowing how to address accounting errors and prevent future ones.
What are the most common types of accounting errors & how do they occur?
The reliability of your accounting method depends upon the data you enter. It includes remembering everything for proper accounting, applying the appropriate calculation method or code for the item, and entering the correct sum.
Ironically, accounting errors can result from either straight-up mistakes or misinterpreting accounting logic. Here are some common errors to avoid when developing accounting reports:
- Registering entities in the wrong account.
- Transposing numbers.
- Leaving out or adding a digit or a decimal spot.
- Omitting or copying a section.
- Treating expenses as income or the other way around.
Error of exclusion
Exclusion is not deliberate but easily neglected. It is forgetting to record a thing. For instance, you pay for a receipt yet, neglect to note it. Or you buy a tablet but do not record this in your account setup. It usually happens when business owners lose receipts and documents, because of which the data never gets recorded.
Error of commission
It is mishandling an item by putting it in the wrong place. When you do the entire math correctly, perform every bit of accounting carefully, but in the end, you put the item in the wrong place. That is what you call an error of commission. For example, you successfully receive payment from customer A, but you end up noting it against the log for customer B. This way, your final received payments will match the total amount, but the customers suffer.
As bizarre as it might sound, but the error of transposition is very common in accounting for small businesses in Mesa. In this type of error, the person managing accounts record the amount by reversing the digits of a number. Transposition causes an increase or decrease in the final amount. For example, while managing accounting, you spend $748 but register it as $478. You just lost $270. A mistake like this could be expensive if we do not recognize such deductible amounts because of the input error.
Error in compensation
This error is two errors that occur concurrently; one negates another. It is hard to identify since the net impact is zero. For instance, suppose you overestimate your revenue by $1,000 but understate your expenses by the same amount, so everything balances out, even when both statements are incorrect.
As the name suggests, an error of duplication happens because you record the identical revenue or cost several times. It can occur when many people have access to an account, and each enters an identical entry.
Error of principle
This mistake occurs when you record an item that does not comply with Generally Accepted Accounting Principles (GAAP). An error of principle typically occurs if we enter a transaction into the incorrect account. The sum is accurate, but we entered it incorrectly. A principle error is a significant procedural blunder since it can have serious repercussions. The most typical mistake is classifying a business owner’s private expenditure as a corporate expense.
Reverse entry error
That comes off as an effect of counting an expense as revenue or vice versa. Rather than entering a $500 transaction in the receivables tab, small businesses mistakenly record it in accounts payable.
How can business owners in Mesa avoid accounting errors?
The very first step in guaranteeing that items are accurately categorized and put on your records is to be cautious with your financial data. Here are some actions you may take to ensure accurate accounting practice.
- Educate employees on data input precision
Make sure that workers who record expenses into the company’s accounting system are familiar with its accounts and categories. Give enough time to describe your accounting procedure to your employees. Make use of the staff training options provided by several applications.
Establish a corporate policy for proper documentation so that everyone managing the accounts can make entries correctly and consistently. For example, record reimbursements to employees after they have submitted expense reports, so you know the numbers are correct.
- Do not overburden your staff
An overburdened staff is more likely to make basic input mistakes than when they are provided enough time to complete an accounting job. However, it is critical that company accounting is kept up to date and runs perfectly with time.
- Try accounting software
Consider using an expenditure reporting application to import data into the company accounting system to enhance data input and minimize mistakes. Likewise, you can always hire an accounting service in Mesa that will make sure your accounts are up to date.
Cloud-based solutions regularly update, but desktop applications need a subscription every few years to keep updated.
- Set up internal controls
Implement processes that will aid in the detection and correction of accounting mistakes. For instance, perform bank reconciliations once a month to ensure you identify every issue and that the inaccuracy does not persist on your accounts. You should also examine every credit card regularly and ensure that the expenses are recorded accurately in the accounting system.
- Hire small business accounting services in Mesa
As a business owner who wants efficient yet hassle-free accounting, you should hire an accounting service to check your accounts regularly and ensure that they accurately reflect your costs and adhere to GAAP. If you are already experiencing issues because of faulty accounting or wish to prevent them altogether, talk to professionals who can ensure your accounting system is functioning accurately.
M&M Accounting LLC offers the top small business accounting service in Mesa. With a diverse team of qualified accountants, M&M Accounting is prepared to address any of your small business accounting service needs. From bookkeeping to tax filing, our staff will help your business grow. If searching for accounting for small businesses, look no further than the M&M Accounting small business accounting service team in Mesa, AZ.