Top 4 Accounting Mistakes and How to Stop Them

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Top 4 Accounting Mistakes and How to Stop Them

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Accounting mistakes can make a companys
financial health look deteriorated and lead to
wrong decision-making. The causes of these errors
are multifaceted, ranging from oversight to lack
of knowledge or just plain human error, and the
consequences can be devastating in the form of
sanctions and loss of credibility.
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Data entry errors

• Data entry is one of the most common accounting
  errors, usually caused by manual input process.
  These mistakes can sometimes be as simple as a
  typo, or recording the wrong figures which can
  lead to incorrect financial statements.
• Impact
• Even small data entry mistakes could trigger
  large consequences, one of them being inaccurate
  financial statements, which will then mislead to
  a company making wrong decisions based on
  unreliable data. Gradually, these errors grow and
  in the long run, the errors become big enough to
  need a lot of time and resources for their
  correction.

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Solutions

• Use double-entry systems This method is based on
  debits and credits recording. By recording each
  transaction twice (once as a debit and once as a
  credit), this method itself ensures accuracy.
• Implement data validation rules Implement data
  validation rules in your accounting software.
  These regulations can be applied to restrict the
  data entry of a certain type of data in specific
  fields. For example, ensuring the field can only
  accept numerical values or employing formatting
  checks to ensure the data entered is correct.
• Regular audits Perform regular audits to find
  and fix any inconsistencies. This strategy
  guarantees prompt correction of any data entry
  mistakes.

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Misclassification of expenses

• When expenses are wrongly allocated into the
  accounting books, we call it misclassification.
  This can occur when the accounting standards are
  unknown or the expense category is mistaken.
• Impact
• Expense misclassification can have a negative
  impact on a businesss financial analysis and
  taxation procedures. For example, a capital
  expenditure being treated as an operating expense
  may lead to higher short term profit and
  accounting issues with tax authorities.

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