Common Accounting Errors That Businesses Face in the Philippines

Companies follow a common set of principles to ensure error-free financial statements and books of accounts. However, countless small and large businesses face several challenges during their accounting process. Accountants encounter accounting errors due to improper recording or failing to encode the entry.

Sometimes a financial transaction may not be recorded in the books of accounts, the wrong amount is recorded in a specific entry, or the accountant credited a receivable to a wrong client. However, some of the accounting errors are minimal and can be rectified. Further in this blog, we will be discussing the most common accounting error so make sure to read it till the end.

What are accounting errors?

An accounting error is a non-fraudulent error while documenting the financial records. When identified, accountants should resolve the error as soon as possible. If it is left unresolved, the company should investigate it. As the accounting errors are accidental, they should not be confused as frauds. Frauds are intentional acts to gain profit or take advantage.

Companies that conduct book closing at regular intervals can discover the accounting errors in the books. These errors can be common when the accountants are not careful or under-qualified for the accounting process. To help you identify the accounting errors better, let’s understand their types and solutions.

Clerical error

An accountant can make errors, during the process of recording transactions. When they don’t cross-check the accounts these errors are left undetected right at the moment. These errors are known as clerical errors. There are two types of clerical errors, one is the error of omission and another is the error of commission.

The error of omission occurs when the accountant completely forgets to record a particular transaction. Contrastingly, an error of commission occurs when the accountant records the transaction but in the wrong account.

Compensating errors

These accounting errors occur when the accountant computes values incorrectly and they result in a counterbalance with an error of the same or opposite nature. These are errors are tough to be identified when they occur in the same account or reporting period. In simple words, these errors are equal in amount but opposite in nature.

Error of principle

If an accountant records the entry in the wrong account that violates the principles of accounting, it is called an error of accounting principle. Just like the compensating error, there can be difficulties in identifying this error.

If a company records the expenses of an individual as a part of the organization’s expense, it is a violation of the principle of the “economic entity”. This accounting principle says that the company’s transaction should be separate from the owners and any other affiliate organization.

Prevention of accounting error

Although accounting errors can be prevented, they can still happen in any organization. Companies should come up with special measures to avoid errors during the accounting process.  There are methods such as reconciliation of accounts to consolidate the account balances. You can also get the help of corporate tax consultants in the Philippines. They are experienced and professional to deal with every matter in the best possible way.