Common Accounting Errors in Society

Common Accounting Errors in Society

Accounting errors can occur for various reasons, ranging from simple mistakes to more complex issues. Here are some common errors accountants might make:

Data Entry Errors: Accidentally entering incorrect amounts, or dates. This could result from typographical errors, transposition of digits, or overlooking decimal points. For Example: Amount Credit in Bank account ₹ 24550 but booked in ledger ₹ 24500, debited ₹ 685 instead ₹ 658 (Transposition of digits)

Reversal of Entries: Accidentally reversing debit and credit entries. This error is common when posting journal entries or reconciling accounts.

Omission Errors: Failing to record certain transactions, expenses, or revenues. Omission errors may occur due to oversight or lack of documentation. For Example: Receipt of ₹ 5000 received in cash towards maintenance but not updated in accounting.

Misclassification: Incorrectly categorizing transactions or entries can distort the financial picture of a Society. Misclassification errors occur when posting transactions to the wrong accounts or applying incorrect accounting principles.

Duplicate Entries: Recording the same transaction multiple times can inflate revenue or expenses and distort Society’s financials. Duplicate entries may result from manual errors or system glitches. For Example: Bank charges debited ₹ 150 but two entries passed in accounting instead of one.

Errors in Calculation: Incorrectly calculating totals, percentages, or other numerical values. For example, TDS is calculated at 2% instead of 1% etc.

Timing Errors: Recording transactions in wrong accounting period. Timing errors may occur when transactions are recorded in the wrong accounting period. When provisioning or adjustment entries are not created appropriately. For Example: Member made payment of maintenance on 31-Mar-2023 but receipt is booked in 01-Apr-2023. Expense done on 01-Mar-2023 but payments booked in 01-Apr-2023.

Failure to Reconcile: Neglecting to reconcile accounts, such as bank accounts, receivables, or payables, can result in discrepancies between internal records and external statements. Failure to reconcile accounts regularly increases the risk of undetected errors or fraud. For Example: 3 different entries of maintenance received ₹ 22000 but unable to reconcile (identify sender), thus funds parked in Suspense Accounts. This will result in incorrect Members ledger Outstanding balance.

Ignoring Accounting Standards: Not adhering to applicable accounting standards or regulatory requirements can result in non-compliance and inaccuracies in financial reporting. For Example: Repair and Maintenance expense booked as Fixed Assets. Fixed Assets purchase booked as Expense in Income and Expenditure Account.

Overlooking Internal Controls: Failing to implement adequate internal controls increases the risk of errors, fraud, and mismanagement. Overlooking internal controls may result in unauthorized transactions. For Example: Internal Control is not to collect cash in society. Staff / Member collects cash from a member but neither deposit it in Bank account of Society nor update the cash collected in books of accounts.

Inadequate Documentation: Lack of proper documentation for transactions, adjustments, or reconciliations can make it difficult to trace errors or verify the accuracy of financial records. Inadequate documentation hinders transparency and accountability in accounting processes. For Example: Payment done but invoice is not available on records, Payment done from society account but invoice is in another person’s name, Society’s name is not mentioned in the invoice, Photo copy of the invoice instead of original invoice, Unsigned invoice copy etc.

To minimize the occurrence of these errors, we suggest daily accounting in societies and following good accounting practices as discussed in our earlier article. Committee should also regularly review financial records and can help identify and correct errors in a timely manner.

Sanjay Mandavia