PayChexjpgYour accounting system is the key to understanding what's happening in your business. It's also vital to tax return preparation and other government compliance obligations. That's why getting things right is essential. Unfortunately, whether you use a cloud-based or desktop accounting system, mistakes can happen. Understanding what can go wrong and how it can impact your business is important. Even more important: Knowing how to correct accounting errors and avoid future ones.

What are the most common types of accounting errors and how do they occur?

The integrity of the information in your accounting system is only as good as the data you enter. This means including an item in the appropriate account, applying the correct description or code for the item, and entering the correct amount.

Unfortunately, accounting errors can result from simple mistakes or misunderstanding accounting rules. Here are four types of mistakes to look for when reviewing accounting reports.

1. Data Entry Errors

Data entry errors are made in where and how items are entered (or not) in your accounting system. Some common data entry blunders include:

  • Entering items in the wrong account
  • Transposing numbers
  • Leaving out or adding a digit or a decimal place
  • Omitting or duplicating an entry
  • Treating expenses as income or vice versa

2. Error of Omission

This is simply a failure to record an item. It's not intentional; it's just overlooked. For example, an invoice is paid but you fail to note receipt. Or you purchase a tablet but don't record this in your accounting system. This can easily happen if you misplace documentation—a receipt or invoice—so that it never gets recorded.

3. Error of Commission

This is mishandling an item by putting it in the wrong place. The amount you enter is correct, and you even put it in the right general account, but you then use the incorrect subaccount. For example, you receive payment on an invoice but note the receipt against a different customer's invoice. Your total payments come out right for accounting purposes, but what's shown for a particular customer is wrong.

4. Error of Transposition

This error is recording the incorrect amount of an item by reversing numbers. This can cause overstating or understating the amount of an item, which is the result of transposing a number. For example, instead of entering an expense as $946, you erroneously enter it as $496. This produces an error of $450. An error like this can be costly if it is a deductible amount that isn't claimed because of the entry error.

To read errors 5 -8, and how can accounting errors affect your business, go here. To learn more about Paychex and Paychex Payroll solutions visit.