Ways to Correct Errors in Accounting
There are two ways to correct errors: reverse the incorrect entry and then record the transaction correctly, or make one journal entry that fixes the error combined with the original entry.
Types of Accounting Errors and Corrections
In accounting, an error refers to something inaccurate, while a mistake refers to something wrong based on usage. This lesson explains the suspense account, different types of errors, recording common transactions, and correcting entries, including how to locate errors in a trial balance when debits and credits don’t equal.
Making Journal Entries to Correct Errors
An adjusting entry fixes mistakes in financial records, such as accruing expenses not yet paid, like rent, or revenue not yet received, such as interest.
You must make correcting entries when finding an error to ensure accurate financial records and adjust the accounting period’s retained earnings.
A correcting entry fixes an incorrect entry made previously. For example, on December 5, 2021, a business paid $370 for registration and licensing fees. The correct entry should be:
Dec. 5: Debit Licenses Expense, $370; Credit Cash, $370.
How to Fix Accounting Errors
To fix accounting errors, reverse the incorrect entry or make a single entry that combines the correction with the original mistake. Errors refer to inaccuracies, while mistakes involve incorrect usage. The suspense account tracks error corrections, and various methods are explained for correcting errors and entries, including identifying unbalanced debits and credits in a trial balance caused by math mistakes, oversights, or incorrect postings.
Transposed numbers like 12 and 19 are common student errors, and correcting journal entries can rectify them. Audio file errors can be fixed in the Audio Editor’s Correction tab after identifying errors and selecting a correction method. Correction markers indicate the fixed ranges.