How to Make Corrected Entries in Accounting

Correcting or adjusting entries are journal entries recorded in a company’s accounting records that correct or adjust an account with an error. The majority of correcting entries are entered at the end of an accounting period, which is when most account balances need to be adjusted for correct financial statement reporting. These entries can also be recorded at the time the error is identified. The journal entry requires that an account be debited, along with a corresponding credit to other accounts.

Instructions

1. Identify the error and the accounts affected. For example, it was determined that the data entry of customer payments for credit sales was overstated by $1,500. The identification of the error should be documented so that the adjustment to the account is justified and does not appear to be done for fraudulent purposes. Usually correcting entries require supervisor approval or are performed by someone with higher authority than the original data-entry person.

2. Record the correcting journal entry. The entry for the overstatement of customer payments involves a debit (increase) to “Accounts Receivable” for $1,500 and a credit (decrease) to “Cash” for $1,500. The entry reverses the effect of the error and corrects the balance of both accounts simultaneously.

3. Save the documentation of the error correction. Most accounting records are subject to periodic review and audit; maintaining good documentation is a sign of sound accounting practice and maintains the integrity of the accounting records. The documentation can be physical copies or electronic documents that cannot be altered.

References

• AccountingCoach: Adjusting Entries
• “Financial: CPA Exam Review”; DeVry/Becker Educational Development Corp.; 2009