Common Balance Sheet Errors
If you are affiliated with the finance and accounting, then you’re probably going to have to make something at some point in time. That something is a balance sheet. While we admit that, on paper, creating a balance sheet sounds really easy. Heck, it almost seems astounding that someone would mess up making a sheet. However, the truth is that sheets are a complex document to make as it includes a lot of minor details to be handled.
Must Read For Balance Sheet Example
For those that need a little reminder, a balance sheet is a paper that companies often give their accountants to make so that they can calculate their equity. Balance sheets are an easy way to organize a company’s financials into an easy to understand/interpret form. So, needless to say, the document is quite important. And you do not want to be someone that messed up their first balance sheet. Now we’ve talked before on how to make a balance sheet. What kind of balance sheet template you should use and what aspects of the company go into making a balance sheet. Now we are going to be discussing the top errors people make when they are making a balance sheet for the first time. Note, the document only offers information about a specific period of time, and you do need to keep updating your sheet after some time.
So here are some things you need to watch out for when you are making a balance sheet.
- Data Entry Errors:
When you are working with huge numbers and have a lot of pressure, you are bound to make a few mistakes. It is natural to mess up a few times and not know it. So always make sure that you keep a close eye out for any data entry errors. Usually, this errors occurs when you enter the wrong numbers in the documents, i.e., the sheet and the financial database don’t match.
So if you placed a 9 instead of a let’s say 12, then that is a data entry error. Also, if you accidentally revered a number, i.e., 47 becomes 74; that is known as “Transposition errors.” There really is no avoiding this error make sure that you revise your draft a couple of times before you sent it.
- Data Classification Errors:
The most common errors that one can find in a balance sheet is the miss-classification of data when it comes to categorizing the company’s assets and liabilities. For those that want to learn how to categorize assets and liabilities correctly, we have in-depth articles for them. Now if you make an error when sorting assets or liabilities there will be a significant change in the result. You will end up with a completely misleading balance sheet and a wrong financial picture about the future of your business.
- Omission Errors:
Omission errors are present in your balance sheet when you forget to add some information to the sheet. The result? Inaccurate representation of your company’s finances/profits. The following error includes;
- Expenses not being reported.
- Inventory quantity adjustment issues.
Now there is no guaranteed way not to make any of these mistakes when you are making a balance sheet. The only way you could make sure that you don’t submit a balance sheet with any of the following errors is to keep reviewing your paper. Keep proofreading your balance sheet, and it will be an excellent document that your company will appreciate.