Correction of Errors in accounting TOPIC 1: CORRECTION OF ERRORS INTRODUCTION It is rightly said

Usually, this mistake isn’t found until you do your bank reconciliation. For example, $1000 worth of salaries payable wasn’t recorded . To make the correction, a journal entry of $1000 must be added under “salary expense” and $1000 added as “salary payable” .

• For example, instead of entering an expense as $946, you erroneously enter it as $496.
• Accounting errors are unavoidable but can be minimized.
• Journal entries are necessary for adjusting the balances of ledger accounts for a variety of reasons, including recognizing accruals, liabilities and other expenses.
• For example, a company’s payment to an independent contractor for $500 was not entered in the books.
• This is the most probable error to take place in the source document.

Reconciliation is an accounting process that compares two sets of records to check that figures are correct, and can be used for personal or business reconciliations. 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 fairly easily.

Error Corrections

For example, if securities are to be offered based on the uncorrected financial statements, the prospectus/offering materials may need to include additional disclosure of the impending correction. Alternatively, it is permissible to reflect the restatement in the soon-to-be issued comparative financial statements.

It is also referred to as special liability and it is a balance sheet component. Capital indicated in the balance sheet/statement of financial position originates from the previous period and it is adjusted by profit, loss, investment or additional capital and drawings. Therefore, any transaction affecting those aspects aforementioned may either cause a decrease or increase in value of capital. To adjust the capital value, a reverse entry is made. Current assets are properties or goods owned by the business and can be assigned a monetary value and exist in the business for a period of less than one year. It does not suffer economic losses on usage as it is in the case of fixed assets. Examples of current assets are; debtors, prepaid expenses, inventory, accrued income, cash and bank, just to mention but a few.

State 6 Errors not affecting the trial balance

The financial implications occurring in the business is dictated by the type of error and the extent of effect on debtor value. This concept is substantiated by the following illustrations. This is because all the individual creditor accounts were included in the purchases day book. Only that the grand totals was wrongly recorded as $50,000 instead of $60,000.

Liabilities can be classified into two for this purpose, capital and external debts such as non-current and current liabilities. Our focus will be on capital although in the illustrations we will use will tackle the treatment of the external debts.

Step 3 – Report Correction of Error

People can make this mistake, but it can also be a computerized error. Reconciliations will also reveal many types of errors. You should perform reconciliations on a monthly accounting errors and yearly basis, depending on the type of reconciliation. Bank reconciliations can be done at month end while fixed asset reconciliations can be done at year end.

• Accounting errors can include duplicating the same entry, or an account is recorded correctly but to the wrong customer or vendor.
• Error of duplication is when an accounting entry is duplicated, meaning it’s debited or credited twice for the same entry.
• When only a single period is presented, the cumulative effect of the error should be recorded as an adjustment to beginning retained earnings.
• This happens when a financial transaction isn’t recorded and so isn’t part of the documentation.
• Following are examples of preventive and detective controls that serve to minimize accounting errors.