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Accounting Error

What is an ‘Accounting Error’

An accounting error is an error in an accounting entry that was not intentional. When spotted, the error is often immediately fixed. If there is no immediate resolution, an investigation into the error is performed. An accounting error should not be confused with fraud, which is an intentional act to hide or alter entries for the benefit of the firm.

BREAKING DOWN ‘Accounting Error’

There are numerous types of accounting errors. The most common (with simple examples):

  • Error of omission: an accounts payable account is not credited when goods are purchased on credit
  • Error of commission: an accounts receivable is credited to the wrong customer
  • Error of original entry: the wrong amount is posted to an account
  • Error of accounting principle: an equipment purchase is posted as an operating expense item
  • Compensating error: a wrong amount in inventory is balanced by a wrong amount in accounts payable
  • Error of entry reversal: cost of goods sold is credited instead of debited and finished inventory is debited instead of credited
  • Error of duplication: depreciation expense is debited twice

Unintentional accounting errors are common if the journal keeper is not careful. The discovery of such errors usually occurs when companies conduct their month-end book closings. Some companies may perform this task at the end of each week. Most errors, if not all, can be corrected instantly. An audit trail may be necessary if a material discrepancy cannot be resolved quickly. The normal method to handle immaterial discrepancies is to create a suspense account on the balance sheet or net out the minor amount on the income statement as “other.”

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Cobi Jones writes about the blockchain community in the US. He is an entrepreneur and private investor in blockchain projects