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August 04, 2022

Transposition Error

Reading Time 3 mins

Transposition errors are not uncommon even in the digital era. It’s critical to regularly check your books to find transposition errors and fix them. Keep reading the article to learn more about the topic.

What is a Transposition Error

A transposition error occurs when an accountant or bookkeeper accidentally interchanges the number as they carry it from one source. In simple words, it’s an entry error.

Suppose a company receives a bill for $340, but an accountant enters $430 by accident in an accounting program. Such a typographical difference in balances will cost a company $90.

Today, it’s difficult to imagine how often such mistakes have been occurring in the past before we started using accounting software. However, it’s possible to cause transposition errors even in modern days. Business owners or responsible for bookkeeping employees have to make regular checks in accounting records to spot errors.

One of the most serious problems that such transposition errors cause is the improper filing of business taxes. A company may even face penalties when unintentionally decreasing taxable income because of several mistakes in a balance sheet.

How Can You Tell if You Have a Transposition Error?

It’s impossible to spot every entry mistake, even when using specific software accounting tools. But it’s possible to monitor books by paying attention to different warning signs.

One of the easiest ways to spot an error in records is to use the rule of nine. The author of this trick has noticed that every time the difference is divided by nine. When checking two digits, one next to another, an error is when a difference can be divided by nine.

Try to divide the difference between sets of numbers by nine. For instance, numb. 423 and 234, 978 and 789, 836 and 386, 295 and 259, etc. The difference is divisible by nine in every case. You may come up with examples that will prove this useful rule. But check some other warning signs that also indicate potential errors.

What Is a Transposition Error

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Unbalanced Trial Balance

According to bookkeeping principles, accounting is mainly concerned with:

  • debits;
  • credits.

Every financial transaction should have a minimum of one credit and one debit. The sum of total credits and total debits are always equal.

A trial balance reflects all account balances to check if debits are equal to credits. Consider making an audit at least every month by opening the company’s trial balance to see if there is a difference between total debits and credits. If there is a difference, then there is a transposition error.

An imbalance in debit and credit accounts causes a business’s balance sheet inaccuracies. As a result, these mistakes lead to inaccuracies in the income statement.

A Source Document doesn’t Match a Transaction Record

If a free or paid accounting software shows differences between a source document and a recorded transaction, then there is definitely a transposition error somewhere in the balance. Apply the rule of nine in this case to get a confirmation.

Take a look at books. Two different statements show separate information. The source check from the client shows the correct amount of money to pay, and it’s $560. But a bookkeeper makes a wrong entry of $650.

Both the check and the bank statement show $650, but books record a $90 lower balance. This difference can vary, but it is always divided by nine.

Methods to Avoid Transposition Errors

As mentioned, errors happen all the time, even when using the most advanced accounting software. On a positive note, you may take action to avoid transposition mistakes. Check two main methods to minimize transposition issues.

Synchronize a Bank Account with an Accounting Software

Manual accounting is tedious and produces more issues than brings usefulness. Use accounting software that allows you to synchronize with a bank account.

You won’t have to spend time figuring out where you made a mistake, and you will find the issue in no time. The cash accounting method easily eliminates the risk of manual mistakes.

Conduct Monthly Bank Reconciliations

The bank reconciliation function compares records to bank statements. It matches every transaction to a source document, so if there are any transposition mistakes, it will notify you about an imbalance.

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Author: Charles Lutwidge

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