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 conducted. 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 account 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."

  1. Tracking Error

    Tracking error tells the difference between the performance of ...
  2. Rounding Error

    A rounding error is a mathematical miscalculation caused by altering ...
  3. Type II Error

    A type II error is a statistical term used within the context ...
  4. Accounting Changes And Error Correction

    Accounting Changes and Error Correction refers to guidance on ...
  5. Errors And Omissions Insurance ...

    Errors and omissions insurance is a professional liability insurance ...
  6. Accounting Cycle

    An accounting cycle is the process of identifying, analyzing, ...
Related Articles
  1. Managing Wealth

    Is Your Portfolio Beating Its Benchmark?

    Compare portfolio manager performance using the information ratio.
  2. Investing

    9 Cognitive Biases That Affect Your Business

    Human beings often act irrationally when it comes to business decisions. Behavioral finance explains the difference between what we should do and what we do.
  3. Taxes

    Seven Deadly Sins to Avoid During Tax Season

    Make sure your tax return is error-free before filing with these seven tips.
  4. Retirement

    How to Fix an Error on Your Social Security Check

    For many seniors, social security benefits checks are their income stream which means the benefit has to be correct. If you spot an error, you can fix it.
  5. Investing

    5 Signs It's Time to Dump Your ETF

    You’ve bought into your favorite ETF, and it's been a great ride. When should you exit? Here are the top signals to exit an ETF position.
  6. Personal Finance

    The Complete Guide to Checking Accounts

    Here is the A to Z of checking accounts: types of accounts, basics on check writing, debit cards, overdraft protection and much more.
  7. Financial Advisor

    3 Costly Retirement Account Mistakes to Avoid

    These are the most common pitfalls investors should try to avoid when it comes to retirement accounts.
  8. Financial Advisor

    5 Ways to Mess Up Estate Planning

    There are several ways to make an estate plan defective, most of which can be easily avoided by periodic plan reviews.
  9. Investing

    Understanding Capital And Financial Accounts In The Balance Of Payments

    The current, capital and financial accounts compose a nation's balance of payments, indicating the state of its economy and economic outlook.
  1. What is a relative standard error?

    Find out how to distinguish between mean, standard deviation, standard error and relative standard error in statistical survey ... Read Answer >>
  2. How do I calculate the standard error using Matlab?

    The equation for the standard error of the mean is the sample standard deviation divided by the square root of the sample ... Read Answer >>
  3. How do you calculate credits and debits in the general ledger?

    Know the key points when balancing a ledger and why it's essential to understand the relationship between credits and debits ... Read Answer >>
  4. How should a change in accounting principle be recorded and reported?

    Learn about changes in accounting principle and why businesses make them, as well as the reporting and recording requirements ... Read Answer >>
  5. What is the difference between the current account and the capital account?

    Learn how to differentiate between the capital account and the current account, the two components of the balance of payments ... Read Answer >>
  6. How should investors interpret accounts receivable information on a company's balance ...

    Analyze accounts receivable information on a company's balance sheet carefully. Receivables offer confidence of future cash ... Read Answer >>
Trading Center