What are the type of errors affecting financial statements?

3. Universal tips how to avoid or correct an accounting error

  1. Before starting to work with any listings, such as fixed asset registers, payroll reports, sales or cash deposits journals, inventory listings and so forth, an accountant should double check that the listings are complete by tracing them to the trial balance.
  2. An accountant should compare the current year numbers to the prior year numbers and analyze why any differences have occurred.
  3. If there are some discrepancies with the trial balance, an accountant should investigate them by referring to journal entries and registers.  Refer to these articles about reconciliations: How to prepare general ledger to sub-ledger reconciliation and How to prepare bank account reconciliation.
  4. An accountant should try to find journal entries with only debit or credit side, large round amounts or entries posted lately after the working day.
  5. If a discrepancy easily divides by 9, an accountant should try to find a transposition error.
  6. If an amount divides by 2, there may be entries that reversed debit and credit accounts.
  7. If an error is found, an accountant should: (a) write down what is already posted to the financial statements; (b) write what should have been posted; and (c) prepare an accounting entry how to correct the error, as it may be easy to confuse debit and credit accounts otherwise.
  8. If an error is difficult to find immediately, it may be appropriate to use the Miscellaneous Suspense account, and clear it later.
  9. If some immaterial amount in the Miscellaneous Suspense account is left uncleared, it may be reclassified to the Suspense account.
  10. An accountant should investigate if a financial statement line item (FSLI) was adjusted in prior periods and assess if an additional correction is needed in the current accounting period.
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