As the old saying goes, to err is human. Even if someone is exceptionally diligent, errors can enter every human process, and accounting tasks are no exception. Even a simple typo or transposed digit is enough to throw off your balance sheet completely. This is why accounting software is very important to have and implement a plan to detect and fix mistakes as early as possible. But given the human error factor involved, it is oftentimes impossible to completely prevent accounting mistakes. One of the best ways you can reduce and eliminate accounting errors is to get the right accounting software.
Accounting Errors: The What, How, and Types
Accounting errors can be defined as unintentional errors caused due to honest and inadvertent mistakes. Accounting errors can be caused due to a variety of factors. It could be because of a slip of the hand, accidentally hitting a wrong key, transposing a number, not having proper knowledge of company policy, and more.
Accounting errors can be categorized broadly into four different types like:
- Data entry errors: These are errors like typos, misplaced decimals, m annual slip ups, etc.
- Omission errors: These types of errors occur when a transaction is overlooked and left out of records by mistake.
- Commission errors: Errors by the commission occur when there is an incorrect action plan. If the transaction is recorded incorrectly, entries are reversed, or when entries are duplicated.
- Principle errors: These types of errors occur because wrong accounting principles are applied to a transaction.
Here’s looking at how these errors can creep in your accounting processes and how you can leverage accounting software in eliminating them.
Account reconciliations
Integrated accounting software can be used to perform timely account reconciliations. This means comparing balances with external sources like bank statements, loan statements, credit card statements, etc.
These monthly or timely reviews or reconciliations can be very helpful to identify and eliminate problems before they get out of hand. This will make year-end and quarter-end easier in the long run. Other benefits of doing timely reconciliations include:
- Calculate how much cash/credit is available.
- Check fraudulent activity
- Find banking errors
- See if there are any missed or pending payments.
Documenting procedures
There are chances for your company to lose out on valuable tax deductions if all of your transactions are not properly documented. A correct accounting software solution can be used to ensure that the transaction documents are in order.
You can use various expense reporting technologies which help report and attach documentation to transactions. An accounting software comes with built-in receipt scanning technology, using which you can upload paper-based recipes and invoices to the cloud and ensure you have proof of documentation to mitigate common errors.
Manual Invoicing and billing
Invoicing and billing are long and tedious processes. Especially if a business generates high-volume expense reports, invoices and billing—getting all this data onto your accounting system can be a challenge. Not to mention, highly error-prone.
Automating this process using accounting software will be hugely effective in eliminating human errors.
Accounting software like Dext can be used even in the background, to pull invoices and receipts from the web or eCommerce platforms. Even if the invoices are complicated, you can easily extract data from receipts using OCR technology to automate the uploading process and eliminate errors.
Onboarding new clients
Without proper attention, onboarding new clients presents a big chance for errors to creep in. There are many factors to consider like syncing contacts, lead generation, and making changes throughout the system. It is very easy for bookkeepers and accountants to make common human errors in this regard.
However, client onboarding is another process that can be automated easily using accounting software. You can use a web-based inquiry form for new clients and integrate these with the company policies and systems.
Comparing balances
Plenty of accounting errors can be found when comparing actual balances to budgeted balances. If there are multiple entries entered by mistake in the same transaction, this causes larger balances. On the other hand, if a transaction is omitted, a smaller balance than expected will be seen. These errors can be identified easily by comparing balances using suitable accounting software.
This same comparing principle can be used to identify performance indicators of current versus previous years. A modern cloud-based accounting software like Dext can automate balance comparisons and ensure your business benefits from error-free accounting.
Wrapping up
For critical business management, accurate accounting information is of paramount importance. Eliminating human error completely may be an impossible feat, but accounting software can be used to minimize its occurrence.
While technology can be a reliable means to decrease errors, one should also be taking other preventive and detective measures in conjunction with them. Always remember, knowledge and training will go a long way to creating a less error-prone work environment for accountants and bookkeepers.