8 accounting errors to watch out for and how to fix them

Photo Smoothies // Shutterstock No matter how meticulous finance teams are, mistakes happen. In fact, it’s estimated that accounting errors and manual financial reporting cost U.S. businesses around $7.8 billion a year. And those mistakes, whether seemingly small or glaringly obvious, can have massive consequences on a company’s financial health. Incorrect journal entries, misclassified expenses, and even overlooked transactions can lead to inaccurate financial statements, tax liabilities, and skewed forecasting. Take a look at the Bank of America for example, which in 2014 reported that it had $4 billion more capital than it actually had. The bank chalked it up to an accounting error that was caused by a misplaced or incorrectly updated spreadsheet, and it caused massive headaches going back to the Fed to resolve the issues. Or look at Uber, which in 2017 discovered an error that deprived New York drivers of tens of millions of dollars on commissions from fares. The error involved Uber taking commission on fares that included sales tax, rather than on only the pretax portion. So, for example, if a passenger paid $20 for a ride, and taxes accounted for around $2 of that fare, Uber was taking commission on the entire $20 rather than the $18. A simple miscalculation that ended up costing their customers a ton of money. In this article, Brex takes a look at the eight most common accounting errors that businesses frequently encounter and provides practical solutions to fix and avoid them. By identifying and addressing them you’ll not only protect your business from legal issues, you’ll have full confidence knowing the foundational numbers of your business are strong enough to build on. What Exactly Is an Accounting Error? Accounting errors are unintentional mistakes that occur when accounting professionals record or account for data. This is an important distinction to make, as the intentional manipulation of data is fraud–something entirely different, with its own set of consequences. Examples of accounting errors may be manually entering a two instead of a three in a spreadsheet, transposing the wrong number from a receipt to your accounting platform, or calculating the wrong state tax. And again, these are honest, unintentional mistakes caused by a lack of resources or a lack of attention to detail. In fact, hundreds of companies attribute these types of errors to burnout and extended work hours caused by the accountant shortage–which can lead to more manual mistakes. And it’s why using accounting automation software can help mitigate manual entry errors, and save your finance team hours balancing the books and reconciling transactions every month. Now that we know what exactly accounting errors are, let’s take a deeper look at the eight most common errors–and how to avoid them. 1. Inaccurate Data Entry The first mistake to watch out for is probably the most common, and one that almost every finance team in the world has likely encountered: inaccurate data entry. This occurs when incorrect information is entered into your accounting system, typical with manual human errors like typos. These can be small mistakes that lead to bigger issues like financial discrepancies, or flawed data analysis–which makes them super important to keep an eye on. Common data entry errors include: Incorrectly transposed numbers: Entering 2,543 into a spreadsheet instead of 2,453. Missing decimal points: Entering $1000 instead of $10.00, which can greatly inflate and skew your reporting. Duplicate entries: Entering the same transaction multiple times, which can result in overstated revenue or expenses. Incorrect accounting codes: Misclassifying expenses by using the wrong account codes. For example, recording office supplies as marketing expenses. As you can see, these kinds of errors are often honest mistakes, but have real-world consequences like overbilling clients or misinterpreting financial reports. To mitigate these issues, it’s important to double-check entries–and implement data validation tools like Brex AI that flag inconsistencies and duplicate entries. 2. Misclassifying Expenses The second accounting error to watch out for is misclassifying expenses. Proper expense classification is critical for accurate financial reporting and tax compliance. When expenses are properly categorized, your financial statements accurately reflect the health of your business–which enables better decision making and maintains credibility. Properly categorizing expenses is also essential for tax purposes, as it ensures that deductions are properly claimed–reducing the risk of audits, or worse, penalties. Common mistakes include: Mixing personal expenses with business expenses: For example, a business owner uses their company card to pay for personal travel expenses. Categorizing capital expenditures as operating expenses: Purchasing long-term assets (like machinery) and recording them as operational expenses. Classifying advertising costs as office supplies: Incorrectly classifying costs like this can distort your actual spending on marketing, which may skew budgets down the road. To avoid these types of errors, companies should use a well-structured chart of accounts. This provides a clear framework for categorizing different types of expenses, and should be tailored to your specific business. 3. Missing or Inaccurate Reconciliations The third most common error accounting teams make is missing or inaccurate reconciliations. Regularly reconciling your bank statements, credit card statements, and other accounts is extremely important for maintaining accurate financial records. This process involves comparing the transactions recorded in an organization’s accounting records against those listed on external statements. The goal is to identify and fix any discrepancies. Running regular reconciliations allows finance teams to detect errors like missed transactions, duplicate payments, unauthorized charges, or even fraudulent activities. Therefore, they can get ahead of them and fix the issues before they cause issues with the accuracy of any financial statements. By syncing your expense data in real-time, and integrating your spend management platform with your accounting software, you can accurately match transactions–reducing human errors and saving time. You’ll also get notified of discrepancies in real time, leaving a more reliable audit trail that can help mitigate future issues. 4. Ignoring Accounts Receivable The fourth common mistake to look out for is ignoring accounts receivable. Uncollected receivables reduce available cash, which can hinder your ability to pay bills, invest in growth, and maintain operations–which leads to bad debt and cash flow issues. To maintain your accounts receivables effectively, you should send timely and accurate invoices that include follow-ups and reminders. Establishing credit policies and conducting credit checks on new customers can also be helpful in minimizing the risk of non-payments. Using accounting software to track your accounts receivable also allows you to stay on top of outstanding balances, helps automate invoicing, and can even trigger timely reminders. These features help streamline your collection process, improve accuracy of your reporting–and most importantly, improve cash flow. 5. Forgetting About Depreciation Another common error to watch out for is forgetting about depreciation. In general, depreciation is a concept that allocates the cost of tangible assets over their useful lives. Depreciation accounts for the gradual loss of value due to wear and tear, obsolescence, and other similar factors. It is crucial to consider when calculating the present value of assets–so that on financial statements the net income and asset values are not overstated or understated. It’s also important for taxes as depreciation is considered an expense that reduces taxable income. There are several methods for calculating depreciation, each suited to different types of assets and business needs: The straight-line method: This spreads the cost evenly over the asset’s useful life. The declining balance method: This accelerates depreciation, applying a higher expense in the early years and reducing it over time. Using software and accounting platforms can help with the calculation of depreciation. Automated systems can apply the chosen depreciation method for consistency, and reduce the risk of human error. These types of systems can also generate depreciation schedules, update asset values in real time, and integrate depreciation expenses into reports. 6. Overlooking Inventory Management Not keeping accurate inventory records–particularly if you run a business that carries physical inventory–is another critical error to avoid. Accurate records are essential for calculating your cost of goods sold, or COGS, and analyzing profitability. Proper inventory management ensures that your business can also meet customer demand without overstocking. Common errors when overlooking inventory management are overstocking, shrinkage due to theft or damage, or inaccurate counts. This is why it’s important to use the proper inventory management systems, which help verify physical stock against records, flag any discrepancies that need addressing, offer real-time tracking with sales, automate reorder points, and generate detailed reports. Adopting these practices ensures accurate inventory records, supports better financial analysis, and enhances overall profitability and operational efficiency. It also makes it a lot easier than physically trying to keep track of all your inventory. 7. Not Backing Up Data Another mistake to avoid that may seem obvious on paper but can often be forgotten, is failing to back up data. And why is this an issue? Let’s say for example that all of your financial records are tied to one finance member’s accounts. When they leave for vacation, or take on another role, you have no access to that data. Even worse, you are more susceptible to cyberattacks or losing everything from a damaged hard drive. Loss of financial records due to a lack of back ups can lead to significant disruptions and financial setbacks, so it’s best practice to have multiple records. Different backup methods include: Cloud storage: For example, using a service like Google Drive to automatically sync and store your data in secure, remote servers. This allows you to access all your data from anywhere and protects against local hardware failures. External hard drives: This would mean regularly copying your data to external hard drives, which are then stored in a secure off-site location. They provide a physical backup that can be quickly accessed and restored in case of system failures or cyberattacks. Network-attached storage (NAS): This type of system connects to a local network, allowing multiple users to back up and access data centrally. NAS devices often come with built-in redundancy and automated backup features, for more reliability. All of these methods should also involve automated backup schedules. A recommended schedule involves daily backups for critical data, and weekly backups for more comprehensive protection. This ensures security, data integrity, and peace of mind. 8. Ignoring Professional Help The final account error a lot of businesses make is ignoring the help of professionals. In particular with tax filing, or helping to establish frameworks for accounting internal controls. Working with a qualified accountant can provide invaluable expertise, ensuring compliance with tax laws, optimizing tax savings and deductions, and accurately handling the complexities of financial transactions. This is especially true for startups that may have more limited resources as they scale. As your team grows, your finance team grows too, but it’s often important to consult outside help for particularly large transactions as their knowledge and experience can provide valuable insight. It also allows your internal team to focus more on core operations, while deferring more intricate financial issues like internal controls and fraud protection to a dedicated resource. Don’t Get Caught Off Guard by These Simple Errors The bottom line: it doesn’t matter how big or small your company is–accounting errors can happen if you’re not careful. As covered above, this can be inaccurate data entry, misclassifying expenses, missing or inaccurate reconciliations, ignoring accounts receivable, forgetting about depreciation, overlooking inventory management, not properly backing up data, and ignoring professional help. Each of these errors can have significant consequences on your business, from financial discrepancies to cash flow problems to regulatory issues and operational inefficiencies. Worse yet, they can create an inaccurate picture of health for your business that makes it hard to plan for strategic planning and growth. Because it should go without saying–accurate financial records are the foundation of informed business decisions. This story was produced by Brex and reviewed and distributed by Stacker.