Who said that bad or no accounting alone can result in mismanagement of your business records? Things can take an ugly shape even if a few errors occur at the time of making entries. It is therefore better to buck up at the right time and fix your accounting errors before things get out of control.
1. Errors of omission
These errors occur when you completely or partially discard a certain entry and omit to record it in the books of accounts. For example: if you purchased machinery and forgot to record the amount in your accounting book, it will count towards error of omission since the amount did not lay any impact on the cash book of your business. These errors should therefore be paid special attention since they result in complete mismanagement of the business accounts.
2. Errors of commission
One of very basic errors which occur when the accountant does not have an idea about the exact place where the transaction should be recorded or posted, due to which either the recording is done at the wrong place or at the wrong side.
3. Error of principle
These are some of the basic errors that occur when some of the very core accounting principles are violated or ignored. It is therefore significant for an accountant to remember whether the income/expense is of revenue or capital nature. Otherwise, major errors may occur in the books of accounts of the business.
4. Compensating errors
If an account has been credited with a higher amount, and another account has been debited with a lesser amount, but in such a way that the overall effect on the books of accounts is nil, is the reason behind compensating errors.
These errors are not only imperceptible in nature, but they can also easily go unnoticed since they create a compensating effect on the accounts.
Chances are very high that your accounts may go completely mismanaged if the above errors are not paid attention and are not taken care of.