Strategies for Minimizing Data Entry Errors in Accounting

Mistakes happen all the time—just look at your phone the next time you’re texting someone or putting in your password. Entering numbers in your books is no different. Data entry errors are common, but unchecked mistakes can quickly tank the accuracy of your books.

A data entry error can lead to incorrect financial statements, inaccurate tax returns, and misinformed business decisions. Minimize accounting data entry errors to maintain the accuracy and reliability of your records. 

What is data entry?

Data entry is the process of inputting information (e.g., numbers and text) into a computer system, spreadsheet, or database. 

The purpose of data entry is to organize large volumes of information for management and analysis. Data entry is essential in accounting, as well as other fields such as healthcare. 

Examples of accounting data entry include recording:

• Financial transactions
• Invoices
• Receipts

Data entry can be manual or automated. In manual data entry, a person manually enters data into a system, which can leave room for typing errors. Automated data entry uses small business digital transformation technology to capture and pull data into the system automatically.  

What are data entry errors?

A data entry error occurs when a person or system incorrectly inputs information, leading to inaccurately recorded data. 

Because businesses use data for analysis, decision-making, and certain processes, data entry errors can have serious consequences. Accounting data entry errors can lead to inaccurate financial statements and tax returns. These types of mistakes can also cause you to overspend. 

There are several types of data entry errors in accounting, including:

1. Error of original entry
2. Transposition errors
3. Reversal errors
4. Error of duplication
5. Error of omission

Fatigue, multi-tasking, mistyping, and confusion can cause you and your team to make mistakes when entering data. 

Machines can make mistakes, too. If you use automated data entry, you need a human to double-check the information is correct.

Data entry error #1: Error of original entry 

An error of original entry is when someone records the incorrect amount to an account. 

For example, you might incorrectly write that you sold a printer for $20 instead of $200. 

With an error of original entry, the same incorrect amount is applied to both sides of the transaction (i.e., the debits and credits), so it is balanced. This may make it difficult to spot and fix the error. 

Find errors of original entry by comparing your transactions to original documents such as invoices and receipts and reconciling your accounts. You can fix this type of error by adjusting entries to reverse the incorrect amount and recording the transaction again correctly. 

Data entry error #2: Transposition errors

A transposition error is when someone reverses the order of two or more numbers in a transaction. 

For example, you record $91 instead of $19. 

You can make a transposition error when recording a transaction in your books, running payroll, or invoicing a customer. Find transposition errors by comparing your records to bank statements, invoices, receipts, etc. If you notice a transposition error, reverse the entry and record the transaction again correctly. 

Data entry error #3: Reversal errors 

Reversal errors happen when someone incorrectly records a debit as a credit or a credit as a debit. 

For example, you debited $100 to an account when you were supposed to credit $100. 

A reversal error does not throw your general ledger off balance, but it does lead to incorrect records. Find reversal errors by comparing your books to original documents, like an invoice. You can correct reversal errors by making a new entry that reverses the incorrect one and recording the transaction again correctly.

Data entry error #4: Error of duplication

An error of duplication is when someone records a transaction more than once in the books.

For example, you accidentally record a $1,000 sale to your customer, Jacob, twice instead of once. 

Errors of duplication incorrectly overstate or understate your accounts, leading to inaccurate financial statements and poor decision-making. You can find an error of duplication by reconciling your accounts with bank statements, invoices, receipts, and other documents. You can fix this type of error by removing the duplicate from your books. 

Data entry error #5: Error of omission 

An error of omission is when someone forgets to record a transaction in the accounting books.

For example, you forget to record a $20,000 expense in your books, making it look like your business has $20,000 more than it does.

Errors of omission incorrectly overstate or understate your accounts. You can find this type of error by reconciling your accounts. You can fix errors of omission by recording the transaction in your books. 

How to minimize errors in accounting data entry

Data entry errors are common, but you need a reliable system in place to minimize and catch errors before they snowball into a bigger issue. 

You might be wondering, How do I get rid of data entry errors? Use the following tips to minimize errors—and quickly catch mistakes you make. 

1. Use accounting software

Taking advantage of accounting software can significantly reduce data entry errors. Accounting software features that can help reduce errors include:

• Automatic bank transaction imports: The accounting system limits manual data entry by automatically pulling bank account and credit card transactions into the system.
• Account reconciliation: Easily compare your statements to your recorded software transactions to spot errors and reconcile differences. 
• Artificial intelligence (AI): AI in accounting can help prevent manual data entry errors with automatic suggestions and data matching. For example, Patriot Software’s accounting software automatically makes expense account suggestions when you import transactions. 

Accounting software also helps you organize your records in one secure location and provides an audit trail, making it easier to track and correct errors. Some systems also let you attach documents, like receipts and invoices, to transactions for easy document organization and management. 

2. Use double-entry accounting

Double-entry accounting involves recording each transaction in at least two different accounts. You must debit one account and credit the opposite account for each transaction, providing a system of checks and balances.

You can use double-entry accounting to ensure your debits and credits are equal, allowing you to identify certain data entry errors early.

3. Establish a standard process for data entry

Keep data entry consistent and accurate by establishing a standard process. Create a process guide with clear guidelines that outline:

• Who is in charge of entering data
• How to enter data
• Who is in charge of reviewing data
• When to reconcile accounts

Have a checks and balances system in place, if possible, to ensure your business catches data entry mistakes.

4. Implement access controls

Who handles the accounting for your business? Restrict access to financial data and accounting to authorized individuals (e.g., you and/or an accountant). Implement access controls to ensure only authorized people can view, add, and modify information.

Implementing access controls can reduce the risk of accidents and even intentional data entry mistakes. 

Train the people with access to your books on how to handle accounting and use the system. Users should value accuracy and attention to detail to help minimize data entry errors. 

Look for an accounting software system that offers unlimited users and users-based permissions so you can limit accounting tasks users can access. 

5. Reconcile your accounts

Compare your business’s numbers in an account with another financial document—such as bank statements, invoices, or receipts—so they match. This process is known as account reconciliation.

Reconciling your accounts helps verify that your entered data is correct. Regular bank statement reconciliation (i.e., monthly) can catch mistakes before they impact your financial statements. 

Again, accounting software can streamline the account reconciliation process and make it easy to reconcile any differences.

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