Finding and correcting errors

Once an entry is posted, don't edit or delete it. Record a correcting entry instead, so the ledger shows what happened and when it was fixed. That trail is what auditors and reviewers rely on — and in most accounting systems a posted entry in a closed period can't be changed at all.

The method. To find the correction, compare what was recorded with what should have been recorded, and enter only the difference.

Rent of 800 was debited to Prepaid rent instead of Rent expense: - Recorded: Dr Prepaid rent 800, Cr Cash 800 - Should be: Dr Rent expense 800, Cr Cash 800 - Correction: Dr Rent expense 800, Cr Prepaid rent 800 — cash was right, so it isn't touched.

An alternative is to reverse the wrong entry completely and record it again correctly; the net effect on the accounts is the same, and some reviewers prefer it because each entry is clearly right or clearly a reversal.

Types of error — and whether the trial balance would reveal them: - Omission: nothing recorded. Correction: record it. Trial balance still balances. - Commission: the right type of account but the wrong one (electricity to Rent expense). Balances. - Principle: the wrong type of account — usually a capital-versus-expense mistake (a repair debited to Equipment). It misstates both profit and assets. Balances. - Original entry: the wrong amount on both lines, often from a mis-keyed document. Balances. - Complete reversal: debit and credit swapped. The correction needs twice the amount (or reverse and re-record). Balances. - Posting errors: one side posted, or the two sides posted with different amounts (a transposition on one line). Trial balance won't balance.

Think about the effect. Before writing the entry, say what the error did to profit and to assets or liabilities. A correction that moves an amount between an expense and an asset changes profit; one between two expenses doesn't. That's what managers and auditors ask first.