Accounting Errors: Common Types and How to Prevent Them
Learn what accounting errors are, the common types, and simple ways to catch and prevent them.
Key takeaways
- Recognize the common types of accounting errors, from data entry and omission to duplication and principle mistakes.
- Reconcile your books on a regular schedule to catch discrepancies before they grow.
- Automate data entry and sync your accounting software to remove the manual work that causes most errors.
- Review your trial balance and supporting documents to detect and correct errors early.
What is an accounting error?
An accounting error is an unintentional mistake made when recording, classifying, or reporting a financial transaction. It happens by accident, which is what sets it apart from fraud.
Fraud is deliberate. An accounting error is not. The good news is that most errors can be corrected once you find them, so the goal is to spot them early and stop them from repeating.
Common types of accounting errors
Accounting errors fall into a handful of recognizable types. The most common are data entry, omission, duplication, transposition, commission, and principle errors.
1. Data entry errors
Data entry errors are mistakes made when typing financial information into your books. They usually happen due to a lack of attention, and accurate records are crucial to any business.
Common data entry errors include:
- A wrong or missing digit
- A misplaced decimal
- A duplicated entry
- Recording an expense as income
One way to guarantee there are no data entry errors is to automate your accounting process. When using Melio for your bill pay, you can upload invoices by snapping a photo and all details are updated automatically and accurately.
2. Failing to reconcile books
Reconciling the books is important not just for the sake of those of you who don’t like a messy back office. It also keeps your business on track with its finances, as well as with different regulatory requirements.
What does it mean? While you’re recording cash flow and other financial data in your books, you want to regularly go back and ensure your bank account reflects that same balance. Differences that are detected when reconciling the accounts are called discrepancies.
To avoid them, we recommend conducting a periodic professional review of your accounts. And, it is always a good idea to hire a professional accountant or bookkeeper to reconcile the books for you. It’s their expertise which means there would be far fewer errors.
3. Not backing up data
This may sound obvious, but you’d be surprised how often this issue occurs. Your financial documents are stored in different places—some are in a pile on your desk and others in the cloud. When they’re not correlated, that can cause a big issue down the line. And when one system isn’t up to date for some reason, going back and finding where we lost track of everything is a huge waste of time.
There are many tools that allow you to back up your data, and again, using online tools to do everything will make everything a lot smoother.
4. Error of omission
An error of omission means you forgot to enter a transaction in the books. You may have forgotten to enter a sale of a service or an invoice you paid. Errors of omission tend to creep up when a company uses petty cash to pay for expenses.
And these kinds of mistakes are extremely hard to find, so it’s better to have a system in place to enter each transaction. One of the best ways to do so is by making all business payments from one online platform. That way, you can be sure that all transactions are documented correctly.
5. Not using accounting software
If you’re using an Excel spreadsheet or paper ledger to keep track of all your finances—and are successful in doing it over time—we admire you. However, if you want to avoid errors altogether, it may be time to invest in accounting software.
When your accounting software syncs with your bank and payments, you cut manual entry and the errors that come with it. QuickBooks syncs with Melio, so payment data flows in automatically and every payment stays tracked.
Having software in place will ensure your accountant has all the historical data they need to manage your books, payroll, and taxes.
How accounting errors affect your business
Even small accounting errors can add up. When your numbers are off, you can overpay taxes, misjudge how much cash you really have, or make decisions based on the wrong figures.
Errors can also create compliance headaches and shake the trust of lenders and vendors who rely on accurate records. Catching mistakes early protects both your money and your reputation.
How to detect accounting errors
Finding errors is easier when you check your books on a regular schedule. A few simple habits catch most mistakes before they grow.
- Reconcile your accounts so your books match your bank balance.
- Review your trial balance to see if debits and credits line up.
- Compare records against invoices and receipts to spot missing or duplicated entries.
How to prevent accounting errors
Most accounting errors are usually the result of human error and can be avoided by automating your accounting. Additionally, hiring a professional to manage your finances guarantees you use the right tools, plus avoid most of these common mistakes.
Most accounting errors come down to manual work, and automating your payments and bookkeeping removes much of that risk. Sign up for Melio to automate bill pay, capture invoices, and sync with your accounting software so your records stay accurate.
Accounting errors FAQs
What are the four types of errors in accounting?
Four common types are errors of omission, commission, principle, and original entry. Each affects your records in a different way, but all can be corrected once found.
What is an example of an accounting error?
Recording a piece of equipment as an everyday expense is a common example. It is an error of principle because the transaction is put in the wrong type of account.
How do you find accounting errors?
Reconcile your accounts, review your trial balance, and compare your books against invoices and receipts. Regular checks help you catch mistakes early.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
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