Mistakes In Accounting Reports: How to Handle Them
Accounting reports help financial managers and business owners to understand everything that is happening inside the company. They are vital to submit tax returns, process employee payroll, and maintain alignment with government regulations. Even the most sophisticated accounting system will produce errors in the reports if the correct process isn’t carried out.
Mistakes in accounting reports are easy to make, but it indicates that there is a flaw with the procedure, and not necessarily the reporting system. To help you navigate and correct various accounting report mistakes, here are four of the most common, and how to fix them.
It’s a simple error that happens to every person on the planet at some point in their lives. This just means that you haven’t recorded at item. It may be a simple oversight, but it has a large effect on how any accounting report is processed. You may have, for instance, forgotten to capture a receipt from a client dinner or company function. This happens more often than you would think because the receipt gets thrown away or misplaced.
Errors of omission happen for any number of reasons, and it is mostly just carelessness. Make it a priority to keep all financial documents in a separate location. File every single piece of paper with a specific organizational system. If you have the receipt in your hand while you sit at the desk, process it. Don’t wait for one day in the month to try to reconcile everything at once.
Transposition errors occur when the wrong amount is put into the accounting system by switching the numbers. It can happen easily to anyone with a bit of dyslexia or lack of focus. Even a $50 difference in the two amounts can result in the wrong information being reported to the IRS. It will either overinflate or understate the true financial status of the business, so these types of errors must be handled carefully.
The only real way to deal with this issue is to make sure that the correct amounts are being captured. Hand the reports to a neutral party to double-check expenses against monies claimed. Sometimes transposition errors will still get through, which is why accounting liability insurance exists.
Duplicating Income or Expenses
Another common mistake in accounting reports: duplicating a financial transaction into the accounting system happens all the time. It may be that you are too busy and haven’t noticed that you processed and printed the same invoice twice. This reflects an incorrect profit amount which will affect taxes and other accounting reports. It can happen with expenses as well, especially if two receipts for similar amounts were processed on the same day.
This mistake can effortlessly be handled with an accounting system. There are features in any financial program that allow you to make specific rules such as monitoring possible duplicated transactions. Duplication errors get overlooked because the invoice number and time stamp may be different. System settings can help if the same supplier is recorded for a similar amount or date. The program notifies you to ask for confirmation before processing any transaction that looks too similar to another one.
Confusing Income with Expenses
Understanding income and expenses are the basics of every accountant’s training. You get accounts receivable and accounts payable. These terms are very similar so it can be confusing when you work with many transactions at a given moment. Say, for instance, you have an invoice for a customer, but you process it under accounts payable. This now shows in your accounting reports as an expense to the business that must be paid, rather than the profit to be expected.
Even in the reverse order, this mistake can have a big influence on your end-of-year financial report. The system will report more money than the business has brought in. The simplest method to get around this error is to process invoices and expenses on alternating days from each other. Pick a set time to only work on accounts receivable and leave the payable accounts for another time.
Mistakes in accounting reports are common, but they are also easy to fix. The most important thing is that you notice when one of these errors occurs so that you can address them as soon as possible.
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