The Most Common Types of Accounting Errors—And How to Correct Them

Accounting errors are unintentional discrepancies that occur within a company’s financial records. While some may be minor and have little impact on overall financial outcomes, others can lead to significant misstatements that distort reporting accuracy and impede strategic decision-making. The latter often require considerable time and expertise to identify and correct. For growing businesses, such accounting mistakes can have far-reaching consequences. They can disrupt financial reporting cycles, complicate audits, hinder cash flow management, and ultimately affect profitability and stakeholder confidence. 

Understanding the common types of accounting errors, and the methods to correct them, is therefore essential for maintaining financial integrity and operational efficiency. Many businesses today rely on outsourced accounting services to identify and fix such errors quickly and accurately. In this blog, we will outline the most frequent types of accounting errors and explain how to address them effectively. This will ensure that your business remains compliant and transparent, while remaining strategically aligned. 

Let’s begin by examining the most common accounting errors encountered in business operations: 

1. Error of Omission

This happens when a transaction is completely left out of the books. It’s not a calculation issue; it’s simply missing data. These errors often occur when someone forgets to record a payment or expense during busy periods. 

Example: A catering business forgets to record a $1,200 payment received from a corporate client. The money reaches the bank, but it never shows up in the income records. 

2. Transposition Errors

This error occurs when digits are accidentally reversed while entering numbers. It’s easy to make and hard to spot unless you reconcile your accounts regularly. 

Example: You type $4,521 instead of $4,251 for a supplier payment. The trial balance might still look fine, but the details will be off. 

3. Entry Reversal

Sometimes, a debit is entered as a credit or vice versa. The total balance may still look correct, but the accounts involved will be wrong. 

Example: A $600 office rent payment is recorded as a credit instead of a debit, making it appear as income rather than an expense. 

4. Rounding Errors

Small rounding differences, whether made manually or by software, can accumulate over time and cause discrepancies between reports or accounts. 

Example: Recording $1,000 instead of $999.67 might seem harmless, but multiple such entries can throw off reconciliations. 

5. Error of Commission

An entry is made in the correct account but against the wrong party or item. The overall figures may balance, but the details will be inaccurate. 

Example: A $750 payment from Client A is mistakenly applied to Client B’s outstanding invoice. Your accounts receivable total looks right, but the client records are incorrect. 

6. Subsidiary Entry Error

These happen when a transaction is entered incorrectly in a subsidiary ledger, often discovered during bank or account reconciliation. Such mistakes can distort both your subsidiary and general ledger balances. 

Example: You record a $3,000 vendor payment as $300 in the accounts payable ledger, leading to a mismatch during reconciliation. 

7. Error of Principle

This occurs when a transaction breaks basic accounting rules or is recorded in the wrong category, even if the amount is correct. It’s a common error for those unfamiliar with accounting standards. 

Example: Recording the purchase of new computer equipment as an expense instead of treating it as a capital asset. 

By understanding these common errors, you can strengthen your internal controls, catch mistakes early, and keep your financial records accurate. Regular reconciliations, periodic reviews, and clear accounting procedures go a long way in preventing these issues—especially when supported by professional outsourced accounting services. 

How to Correct Accounting Errors 

Even with strong accounting controls, mistakes can still happen. The good news is that most accounting errors can be fixed easily once they’re found. One of the most common ways to correct an error is by adding a correcting journal entry. 

A correcting entry adjusts your books for a specific accounting period to keep your financial statements accurate. It’s part of the accrual accounting system, which uses double-entry bookkeeping, meaning every transaction includes both a debit and a credit. 

Example: 
A business forgets to record $1,000 in salaries payable (an error of omission). To fix this, create a journal entry that debits the “Salary Expense” account by $1,000 and credits the “Salary Payable” account by $1,000. 

If the error occurred in a previous year, you’ll need a backdated correcting entry to adjust the right period. 

Example: 
If the $1,000 salary omission happened in 2017, the entry should be dated December 31, 2017, to keep the records historically accurate. 

Step 1: Identify the Error 

Before making corrections, you must first find where and how the error occurred. Two of the most effective ways to spot mistakes are by reviewing your trial balance and performing regular reconciliations. 

Reviewing the Trial Balance 

A trial balance summarizes all your accounts, showing total debits and credits. These should balance; if not, there’s likely a recording or posting error. 

Most accounting software can generate trial balances and highlight inconsistencies automatically. However, not every type of mistake will show up here, for example, errors of omission or principle may still go unnoticed. 

Reviewing Reconciliations 

Reconciliations are another essential step in finding and fixing accounting errors. They involve comparing your internal records with external statements to ensure everything matches. 

• Bank reconciliations should be done monthly. Compare your cash book (where you record receipts and payments) with your bank statement. If they don’t match, review each transaction line by line to find timing differences or posting mistakes. 

• Fixed asset reconciliations are usually done yearly to verify that all assets and depreciation amounts are recorded correctly. 

Regular reconciliations not only help catch discrepancies early but also improve financial accuracy for audits and reporting. Many companies use outsourced accounting services to perform reconciliations and ensure they’re correcting accounting errors quickly and effectively. 

Step 2: Establish Routine Checks 

Even with automation and skilled accountants, errors can still happen. What matters is having a systematic review process in place. Schedule monthly and quarterly checks, reconcile accounts regularly, and record any corrections made. 

Routine reviews help you: 

• Detect errors before they affect your financial statements. 

• Keep profit and loss figures accurate. 

• Build trust with auditors, investors, and management. 

Partnering with professionals who specialize in outsourced accounting services ensures that such processes are maintained consistently, helping businesses focus on strategy while experts handle correcting accounting errors behind the scenes. 

The Bottom Line 

Accounting errors are inevitable, but they can be managed and corrected efficiently with the right processes. Regular reconciliations, timely journal entries, and a disciplined review routine will keep your books accurate, compliant, and reliable. 

How KMK Ventures Can Help 

At KMK Ventures, we understand how easily accounting errors can disrupt business operations, delay reporting, and affect decision-making. Our outsourced accounting services are designed to help businesses maintain accurate financial records through: 

• End-to-End Bookkeeping Support: We manage day-to-day transactions, journal entries, reconciliations, and error corrections with precision and consistency. 

• Automated Error Detection: Our team leverages advanced accounting software and internal control systems to spot discrepancies before they escalate. 

• Periodic Reviews & Reconciliations: We perform monthly, quarterly, and annual reviews to ensure your books align with GAAP standards and internal policies. 

• Expert Oversight: Our accounting professionals have extensive experience across multiple industries, ensuring that every entry is correctly classified and compliant. 

• Scalable Solutions: Whether you’re a growing startup or an established enterprise, our services scale with your needs, eliminating the cost and burden of managing an in-house accounting team. 

With KMK Ventures as your accounting partner, you gain the accuracy, transparency, and control needed to make informed financial decisions, all while freeing up internal resources to focus on growth. 

Conclusion 

Accounting errors may seem small at first, but their impact can compound quickly, affecting compliance, profitability, and overall business health. The key lies in prevention through regular reconciliations, accurate recordkeeping, and timely corrections. 

However, ensuring this level of accuracy requires both time and expertise. That’s where KMK Ventures comes in. Our outsourced accounting services help businesses detect and correct accounting errors efficiently, strengthen internal controls, and maintain complete financial transparency. 

Still not sure how to improve the accuracy of your accounting processes? That’s where KMK comes in—our experts combine human insight with advanced tools to keep your books balanced, compliant, and audit-ready.