Accounting information is the collection of stored data about the financial statement of a business. It is generally computerized data which usually comprises much more than the balance sheet, cash flow, and expenditure chart. It also contains the data of collective revenue, bookkeeping, income tax data, and confidential details of the employee’s salaries. This information lends itself to human error, primarily when a professional accountant or bookkeeper doesn’t perform.
In the initial stages of a business, every entrepreneur makes accounting errors from time to time. Even the tiniest mistakes can affect the practicality of your financial statements. That is why; you must know how to detect these errors is a significant skill to develop regardless of what accounting tool or software you subscribed to carry out the business operations.
As a business owner, you must know that financial mistakes are inevitable. While you can’t resist every error, it’s essential to prevent them from escalating or compounding. To avoid these circumstances, you must be aware of the solutions to implement them at the time of need.
However, if you want to keep the accounting errors confidential and want to solve them on your own, then here’s a list of the most common accounting errors of all time, along with the preventive measures.
Data entry errors:
Entering incorrect data in the balance sheet is one of the most common forms of human error, and it causes unnecessary loss. While you can’t prevent every data entry error, you can put some procedures to ensure that entries are recognized and corrected promptly. The best preventive measures we can take to eliminate data entry errors include:
- Only one person can carry out the data entries in a day. Be practical and assign only a few employees to complete this task.
- Whether your company implements frequent reconciliations or quality checks, ensure that another set of eyes reviews the accounts, including your own. In this way, the employee will double-check his work, and your business will reflexively avoid every possible error.
Lack of documentation processes:
If you forget to maintain certain business expenses, your company might lose valuable tax deductions. The IRS doesn’t contemplate expense items logically unless escorted with supportive documentation. To prevent this, you can apply the following solutions.
- Set a business policy that shows the expense reports unpaid unless receipts are attached.
- Utilize accounting tools such as Expensify or Zoho books to help make the company’s expenses reporting a breeze.
- Suppliers want to get paid. However, don’t pay them unless they submit a bill.
Timely Reconciliations:
Reconciliation is the procedure of reviewing that an account balance listed in the accounts is accurate. This procedure helps to identify the issues before they get out of hand. If done manually, the process should have multiple human eyes reviewing the process. Many accounting software programs provide an advanced reconciliation feature to make it virtual and efficient.
Avoid getting help when needed:
While you are operating a growing business, you can’t surely do it all yourself. Feel free to ask for help when you know that you need it. Maybe you enjoy managing business accounts, but you’re not a professional in the finance field and can make multiple accounting errors. Recognize your strength and know your weaknesses. Fortunately, you can hire a professional and experienced accountant or adviser to look out for financial management.
Trashing the official receipts:
One of the most significant human errors occurs when official receipts are lost. Try to secure the financial tickets until the government audit your business records. Whether you’ve recorded the transactions, it is still possible that you require them as proof while preparing an audit. You can utilize the receipts to convince the auditors that you have reported the correct amounts.
Accounting errors are accidental and bound to happen, but the business’s ability to identify and prevent those errors ensures the entrepreneur’s sensibility to tackle the obstacles. Usually, accounting errors emerge during cash transactions or entries. However, it would be best if you never let faulty accounting practices undermine the financial security of your business.
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