How to Catch Incorrect Accounting Entries
Catching incorrect accounting entries can be tough because of the sheer volume of transactions that occur on a daily basis. Accounting entries, also known as journal entries, are typical of the double entry system of accounting, devised by Luca Pacioli in 1494 in his book "Everything about Arithmetic, Geometry, and Proportions." Mistakes can happen in this process, even if you're using a computerized system. Learning how to find these errors can save you lots of time and energy.
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Instructions
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Review the trial balance. Run a trial balance report and verify that the credits equal the debits. If they do, review the account in your system that is supposed to be a "balancing" account -- search for entries that should have gone to other accounts. Many accounting systems don't allow one-sided journal entries and will default the missing part to this balancing account Look at the trial balance for odd numbers that shouldn't be there, like a rent expense that is too low or an insurance expense that is too high.
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Put all journal entries in a spreadsheet. This makes it easier to identify missing parts of entries and other accounting problems. Once on a spreadsheet, you can filter and manipulate the entries, as if they were data, conduct analysis and catch errors. For example, you can easily see what entries hit certain accounts by sorting data by account or by filtering the information. You can add formulas and identify any journal entries out of balance, which cause problems with reports.You can also identify transactions recognized in wrong accounts, such as an expense posting to a revenue account.
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Check the dates on journal entries. Some systems allow you to create journal entries with multiple dates -- a date for each line item. This creates a big problem when you run reports and your balance sheet doesn't balance. The date usually happens when the accountant prepares manual journal entries. Date issues are especially hard to identify because the journal entry appears to be perfectly fine, and you may need to dig deeper to verify the dates.
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Tips & Warnings
Transposition of numbers can be detected if the discrepancy is divisible by 9. For example, if instead of 1,876, you wrote 1,687. The difference is 189, which is divisible by 9, pointing out that the error is likely to be a transposition.
