Accountants might make errors during their day-to-day tasks. Whenever these errors are spotted, they should be corrected immediately to avoid processing the wrong data and creating misleading financial statements. These corrections can be made using the correcting entries.
Keep in mind that correcting entry is not an adjusting entry. An adjusting entry is required to make the company’s financial statement reflect the accrual basis of accounting. On the other hand, you can use the correcting entry to fix a transaction error that you had previously recorded in the business general ledger.
For instance, you might have erroneously recorded monthly depreciation in the amortization account. If this happens, you will have to use the correcting entry that involves moving the depreciation entry to depreciation expense account (debit) and credit the amortization expense account. Alternatively, you can reverse the original entry and replace it with a new entry that can charge the expense to the depreciation account correctly.
Keep in mind that a correcting entry should be made by someone who understands accounting well, or you can engage an accounting firm in Singapore if you don’t have one in your team. This is because if a correcting entry is made wrongly, it will have an impact on your business financial transactions. Therefore, it makes sense to have a controller who can approve or disapprove all proposed correcting entries and assess their impact.
Besides, it is important to document every correcting entry. Such entries are hard to interpret after some time. This implies that attaching to each correcting entry a document that shows the original error and how it was corrected is crucial. This will also help the company auditors to understand the various correcting entries you made in your general ledger and why you made them.
As soon as you discover an error in your books, you should evaluate it and make the necessary correcting entry. Otherwise, you may forget and never to make the correcting entry especially if your company performs huge volumes of transactions every day. This is because if the error corrections fall outside the usual flow of transaction process, there is no procedure or calendar that tracks whether the corrections were made or not.
Sometimes, correcting entries can be time-consuming. First, you need to keenly check every transaction and cross-check the entry amount with the source document to verify that it is indeed an error. Then, you should verify the error amount before making the correcting entry to avoid making a subsequent error.