Accounting Tips For You

Steering Clear of Bookkeeping Mistakes and Errors

Bookkeeping, if not handled well, can result in big blunders that can affect the strategic growth as well as the image of a company. We will see how the errors and their rectification influence the over-all profit of the organisation. So, being knowledgeable about some of the rules are helpful in understanding more about the different aspects of bookkeeping. If due to an error a nominal account has been extended debit, the profit will witness a decrease or the loss will go increasing. But, when error gets rectified, the profits will show an increase and the losses will show a decrease. For instance, the machinery in a company is overhauled for Rs.100000, but the bookkeepers have debited the amount to machinery repairs account. This is an error that will definitely reduce the profit. In the rectification process, what needs to be done is that the sum has to be transferred to machinery account from machinery tinkering and repairs account; and, this correction will increase the profits.

In the case of the amount being omitted from recording in the debit column of a nominal account, what happens is that there will be an increase in profits or a decrease in the case of losses. The correction will yield a reverse effect, and that means the profit will get reduced and the loss percent will witness an increase. For instance, in the case of rent paid to landlord being debited to personal account of landlord, there is an increase in the profit as the expenditure towards rent gets reduced. As the error sees rectification, bookkeepers will post the necessary amount in the rent account column. This, in turn, will show an increase in the expenditure aspects and so profits also will get reduced.

If it so happens that a nominal account is credited wrongly, the profit is set to increase, or otherwise the losses will decrease. When this error is corrected, the profit aspect will decrease and loss aspect will increase. As for an example, the invested property was sold and the amount got credited to the account of sales. This error resulted in an increase in the profits. Then when the error sees rectification, the amount has to be transferred from sales account to account of investments. Due to this correction, sales will show a reduction that leads to a dip in profit.

Getting to the errors affecting the balance sheet, if an error is made in a personal account, it will have considerable effect on the assets, liabilities and debtors or creditors of the company. The result is that it will show the effects on the balance sheet only. These items are made known in just the balance sheet; remember that balance sheet is prepared only after the profit and loss account gets completed. So, if there happens to be some error in cash/bank account and asset/liability account, it will practically affect only the balance sheet. Rectification of bookkeeping errors has to be undertaken at the outset itself, when it becomes obvious. This way, the financial aspects related to a company will stay accurate and up to date.

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