What Exactly Are Errors of Omission?

Your business lives and dies by your ability to buy and sell products on a competitive margin. But, you may take for granted why bookkeeping is important to the health of your business. Several mistakes—like errors of omission—can get in the way of keeping accurate books

Inaccurate financial records make measuring profitability and filing small business taxes far more difficult than they need to be. 

Read on for an overview of accounting errors, explanations of partial and complete errors of omission, and helpful examples so you can avoid these mistakes and keep your books in order.

What is an accounting error?

An accounting error is any type of mistake that affects accounting entries. Accounting errors aren’t intentional, and they can be easily fixed if spotted in time. 

You should watch out for errors of:

• Original entry: The wrong amount is posted in an account
• Duplication: The entry is debited or credited twice
• Entry reversal: The debit is entered as a credit and vice versa
• Commission: The debits or credits are entered in the correct account but the wrong subsidiary ledger
• Omission: The transaction occurs but an entry is only partially made or is omitted entirely

Generally, these errors happen because of a disorganized workspace, a lack of internal controls (e.g., rules and regulations for handling financial information), or an overworked bookkeeper. 

There are simple ways to avoid most errors, which we’ll cover below. But first, let’s define errors of omission. 

Sure, mistakes happen all the time. But that doesn’t mean they should happen in your accounting books.

Download our FREE whitepaper, 10 Common Accounting Mistakes You Don’t Want to Make & How to Avoid Them, to learn more about how data entry errors, not measuring progress, or trashing receipts (among other mistakes) can affect your books.

What are errors of omission?

There are two types of omission errors, a partial error, and a complete error. Both have something in common—an entry has been left out of the ledger. But, the two errors generally happen in different places in the accounting cycle. The accounting cycle is made up of eight steps:

1. Identifying transactions
2. Recording transactions as journal entries
3. Posting entries into the general ledger
4. Preparing an unadjusted trial balance
5. Looking for reasons for an imbalance
6. Making adjustments
7. Creating financial statements
8. Closing your books

Partial errors happen when you record transactions as journal entries (#2) or when you post entries in the general ledger (#3). These are clerical errors. If you or your accountants are overworked, disorganized, or lack internal controls, you’ll probably find some partial errors at some point in the year. 

Complete errors often happen when identifying transactions (#1) because the transaction and its attendant paper trail is entirely overlooked, misplaced, or lost. The same reasons for a partial error apply here—overworked bookkeepers, disorganized processes and workspace, and a lack of internal controls. 

What is a partial error of omission?

A partial error of omission happens when only one part of the transaction is recorded, either debit or credit, but not both. 

For example, a credit sales transaction is recorded for Cheers Bar in the sales book but is omitted from Sam Malone’s (the owner) account. With one entry missing, the two don’t balance each other out. This will affect the trial balance. 

What is a complete error of omission?

A complete error of omission happens when a transaction isn’t recorded at all. These errors are common if you aren’t careful with your receipts. A complete error is difficult to spot. Everything appears to balance correctly since there is no record of credits or debits to balance. 

Let’s take another look at our example from Cheers Bar. After the credit sales transaction takes place, the receipt and all memory of the sale disappear. Mr. Malone still has the goods he purchased on credit, but because he forgot to record it, he has no recollection of the sale or of the credit term. Complete errors of omission are difficult to spot. Usually, your creditors or debtors will let you know of the problem.

Correcting entry: How to make up for the mistake

Making an error of omission isn’t the end of the world for your accounting team. There are a few easy ways to use a correcting entry to fix these mistakes. 

For partial errors of omission, simply add in the corresponding entry and make sure that your debit and credit entries balance.

For errors of complete omission, the correcting entry depends on when you caught the error. If you catch the error before closing your books, you can simply add the entry in your general ledger. But if you catch the error late, you’ll have to backdate it and leave a narration explaining the mistake. 

How to prevent mistakes

If you’re concerned about accounting errors, try not to worry—there are a few things you can do to prevent these mistakes:

• Get organized. Create a detailed process for handling and inputting your receipts. Go digital if you have to, and learn how to organize receipts electronically. Also, think about creating a schedule for inputting your receipts. 
• Improve your internal controls. Make sure that your controls are detailed and clear enough to understand. 
• Review transactions regularly. Hold monthly or even weekly reviews. The more frequently you check your transactions, the sooner you’ll catch (and help prevent) mistakes. 
• Create a trial balance before finalizing your balance sheet. A trial balance is like a practice run—it doesn’t affect your overall standing if things go wrong. If you realize that your debits and credits don’t match up, that’s OK. All you have to do is find the errors and fix them so your adjusted trial balance does match up. 

This is not intended as legal advice; for more information, please click here.