Understanding Correcting Entries
The accountants would use correcting entries as journal entries that help in correcting a wrong transaction that they have recorded in the general ledger (Also see What are the Differences Between a Trial balance and a General Ledger?) before. As an instance, an accountant may have recorded the monthly depreciation entry wrongly to the amortisation expense account. Thus, to move the wrong entry to the depreciation expense account, where the entry is supposed to be, he would use a correcting entry. The entries he would make in this process is debit depreciation account and credit amortisation expense account. Another way the accountant may use is by reversing the original entry (Also see An Overview of Reversing Entries) and replace it by a new entry which charges the expenses to the correct account, which is the depreciation account.
Typically, only the experienced accountants would make the correcting entries. This is because they understand the accounting system better, and they know how would the special journal entries affect the company’s financial statement. Hence, if you own a small business and you are doing the accounting tasks on your own without an in-depth understanding of accounting, you should engage a bookkeeping service in Singapore. This is to ensure that you do not make any serious mistakes on your financial statements without realising it. Also, if you outsource your bookkeeping-related tasks, you will have more time to focus on your core business activities and at the same time, keep a tight grip on the finances of your business.
If your company can afford hiring in-house accountants, you should also make sure that they handle correcting entries carefully. It is more advisable to have a controller to approve all the correcting entries that the accountants have proposed before making those entries. This is to make sure that there is another person who confirms that the correcting entries made will bring them the effect they want.
Whenever the accountants make correcting entries, they must make sure that they have recorded the relevant information fully (Also see How To Organize Your Accounting Records in Singapore?). This is because it can be difficult for them to understand those entries after some time. Hence, the accountants should keep the documentation of journal entry of the original mistake and the notes that state the way the correcting entry would fix the mistake. Keeping sufficient documentation is vital, especially if the auditors will review the correcting entries later when they audit the financial statements of the company (Also see Which is the Most Important Financial Statement?).
The accountants should make a correcting entry once they have found a mistake and analyse them. If not, there is a high possibility that they would not correct the mistake as the correction is not one of the processes that they would do when they are processing transaction normally. Thus, there are procedures or work calendar that helps in monitoring whether they have completed those transactions.
The accountants may need to spend a lot of time on creating correcting entries. Hence, they should track how many correcting entries they have made in a month and determine whether they have solved the issues that cause those entries. By doing so, they may understand the problem and solve them as soon as possible, as well as take preventative measures to reduce the number of correcting entries they need to make. This enables them to have more time to deal with other tasks.