Question

Discuss one of the following types of accounting errors. How often do you estimate they occur? Would the financial statements really be misleading if these errors were not corrected?

Mathematical mistakes.

Answer 1

Mathematical mistakes:

It includes calculation error (such as a wrong multiplication), balancing error (such as ending balance in accounts receivable account), and posting error (such as cash debit entry wrongfully debited to Inventory account).

How often:

Answer: It happens very often.

Although there are modern tools and techniques in the process of accounting (such as an accounting software and package), math mistakes cannot be eliminated completely. Suppose if a voucher entry is wrong (such as a calculation error in amounts), the corresponding effects in Ledger postings, Trail balance, Income statement, and balance sheet, would be all wrong.

Misleading:

Answer: Yes, there must be misleading.

Financial Statements are Income statement, Balance sheet, Retained earnings statement, and cash flow statement. If there is a calculation error, figures in these statements become wrong; stakeholders, those who are using these figures, may be misguided. Suppose the Net income in the Income statement is $45,000 but it would have been $52,000.