Types of Errors in Accounting
An error in accounting is a non-fraudulent error in double-entry bookkeeping transactions. In most cases, errors occur because the bookkeeper either lacks accounting expertise or is careless.
The moment an error is spotted, investigative measures should be taken and corrections made. Errors that are allowed to persist in the ledgers can compound over time and create massive headaches to find and correct later.
Unlike an accounting error, accounting fraud is a deliberate falsification or misrepresentation of the financial affairs of the entity. Don’t get the two mixed up. Errors simply need to be corrected. Fraud should be prosecuted.
Some errors can be identified quickly while others take time. You can spot the easy errors when the debits do not equal the credits in the trial balance. The harder errors to identify do not affect the trial balance. Detecting these errors requires investigative expertise. Until you can find and correct the source of the error, you should show the trial balance discrepancy in a temporary suspense account.
The errors described below are typical in bookkeeping.
Accounting errors affecting the trial balance
As mentioned above, errors that throw the trial balance out of balance are relatively easy to find. The following two types of errors are common when the ledger accounts do not balance.
- Error of omission: Leaving out part of a double-entry transaction creates an imbalance in the trial balance. For example, the bookkeeper enters a debit in one account without entering an offsetting credit in another account.
- Error of commission: Recording unmatched values in offsetting credits and debits or entering two credits or debits instead of one credit and an offsetting debit are two types of errors of commission. For instance, the bookkeeper may have entered $421 as a credit but mistyped $412 as the offsetting debit. Or the bookkeeper entered $500 as a credit to one account and then mistakenly entered $500 in the credit column rather than the debit column of another account.