Common Financial Accounting Errors in Wealth Management and How to Fix Them

The integrity of your accounting system plays an important role in the health of your business, with slight errors trickling down to various financial reports within your retirement company. While some errors are fraudulent, others will likely be everyday mistakes, with each leading to various complications along the way. Identifying and rectifying them as soon as they occur will be essential for helping you minimize further damage to your business. So, what are some errors to look for, and how can the Outlook Wealth Advisors Retirement Planning team help you correct them?

Transposition Errors

Transposition errors refer to mistakes that arise when data is reversed. If, for instance, you sell some goods and record an income of $3500 but put it down as $5300, this translates to a transposition error. The difference in these figures could leave you with increased taxes if the income is taxable, with erroneous expenses leading to the wrong deductible amounts. Conducting internal controls to check if your reports match individual journal entries, receipts, and invoices can help solve this problem. You could also outsource an accountant to help review your accounts.

Data Entry Errors

As the name implies, these errors occur when the wrong data is entered into your books. Instances that could lead to this include writing the correct figure under the wrong entry or recording an incorrect number in your books. This may result in an overpayment or underpayment of your suppliers, leaving you with a loss or erroneous profit. To rectify this, ensure that you double-check your entries. Automated accounting software can also help eliminate mistakes arising from employee fatigue.

Duplication Errors

Duplication errors are a result of recording one transaction multiple times. This could be an income or expense, resulting in misleading records that do not match your bank statement. The solution to this will be paying attention during your recording exercise and practicing accuracy when filling out your records. Accounting software could also help with this, eliminating such an issue.

Compensating Errors

Compensating errors occur when two mistakes offset each other. An example could be when you overstate your income by $2,000 and overstate your expenses by the same amount. Your balance sheet will appear correct since these two offset each other. Unlike other errors that will be easy to spot due to visible discrepancies, this one will be more difficult to detect.

Having a professional accountant review your reports will be the safest bet to helping you track this error, with an untrained employee likely to miss this mistake. An interim audit could also save you from a tedious end-of-year reconciliation and financial reporting mishap, paving the way for an error-free accounting system.

Principle Errors

Principle errors occur when employees fail to follow accounting principles. This is common when transactions are miscategorized, with sales often interchanged for purchases and vice versa. Another scenario could be swapping debits and credits, creating errors in the cash flow statement. Fixing this will require you to train staff in the financial department to recognize and record the accounting principles as expected. You could also save training costs by hiring qualified personnel that understands these principles to avoid future errors.

A single error could wreak havoc in your accounting system, with mistakes triggering problems in your short-term and long-term financial reports. If you experience duplication, data entry, or transposition errors, consider contacting an accounting expert before these mistakes spiral out of control. In addition to this, training your staff to mitigate compensation and principle errors will be vital to minimizing follow-up costs in the long run.

Samantha

Samantha hails from Virginia and is a proud wife to a retired Deputy Sheriff and mother to two amazing little boys named Jack & William. A veteran product reviewer; Samantha has been reviewing products for 8 years and offers high quality product reviews with original photography.