Bookkeeping errors fall into two groups: those that make the debits and credits disagree, and those that leave the books balancing but wrong. Errors of omission, commission, principle and reversal, together with original entry errors and compensating errors, are all invisible to the trial balance and are found only by reconciliation and review. Knowing the type of error tells you how to find it, how to correct it and whether it changes profit.

What are the main types of bookkeeping error?

ACCA’s technical article on suspense accounts and error correction gives the standard classification. The table below applies it to a small business, with the effect of each error.

Error What happens Example Trial balance still agrees?
Omission A transaction is not recorded at all Bank charges never posted Yes
Commission Correct side, wrong account, but the right class of account Heat and light posted to telephone Yes
Principle Correct side, wrong type of account Machinery repairs (expense) posted to machinery cost (asset) Yes
Reversal of entries Right accounts and amount, debit and credit swapped Purchase invoice entered as if it were a credit note Yes
Original entry, same figure Wrong amount used on both sides £100 stationery entered as £1,000 Yes
Compensating Two unrelated errors of equal value cancel out Sales overstated by £50 and rent overstated by £50 Yes
Transposition, different figures Digits swapped on one side only £32 paid, £23 posted to expense No
Single sided entry Only one side posted Bank receipt posted, other side missing No
Same side twice Two debits or two credits for one transaction Accrual debited to both accruals and expense No

Apart from the compensating error, the examples follow those in ACCA’s article. Compensating errors are a recognised extra category: each error on its own would unbalance the books, but together they hide each other.

Why do so many errors not show up in the trial balance?

A trial balance tests one thing: that every debit has a matching credit. Any error where the debit and credit are equal, even if both are wrong, passes the test. ACCA notes that computerised systems are unlikely to accept an unbalanced entry at all, so in modern software almost every error is one of the balancing kind. That means a balanced trial balance says very little about whether the books are right.

How do you find errors that the trial balance misses?

Each type tends to be caught by a particular check.

  • Omission: the bank reconciliation catches unrecorded bank items. Supplier statement reconciliations catch missing purchase invoices, and a sequence check on sales invoice numbers catches missing sales.
  • Commission: customer and supplier statements catch receipts or payments posted to the wrong account. A review of expense headings against last year, line by line, catches costs in the wrong heading.
  • Principle: a review of additions to fixed assets against invoices catches repairs that have been capitalised, and a review of large expense items catches capital purchases that have been expensed.
  • Reversal: a supplier or customer balance on the wrong side, such as a debit balance on a supplier account, is the usual sign.
  • Original entry: comparing the posted amount with the source document. Analytical review, asking why stationery has jumped tenfold, is often what prompts the check.

For errors that do unbalance the books, two arithmetic checks help. A difference that divides exactly by 9 often points to transposed digits. A difference equal to twice an amount in the ledger often means that amount was posted to the wrong side, so halving the difference gives the figure to look for.

How is each type of error corrected?

Every correction is made by journal. ACCA’s approach is to write out what was posted, write out what should have been posted, and post the difference. Where the original error created a suspense balance, one side of the correction goes to suspense; otherwise the journal goes directly between the accounts affected. See suspense accounts and journal entries explained.

Illustration only.

Error Correcting journal Effect on profit
Bank charges of £115 omitted Debit bank charges £115, credit bank £115 Down £115
£300 heat and light posted to telephone Debit heat and light £300, credit telephone £300 None
£2,000 machinery repair posted to machinery cost Debit repairs £2,000, credit machinery cost £2,000 Down £2,000, partly offset by reversing any depreciation charged on it
£400 purchase invoice entered as a credit note Debit purchases £800, credit supplier £800 Down £800
£100 stationery entered as £1,000 Debit bank £900, credit stationery £900 Up £900

The reversal needs double the amount, because the original entry both removed a purchase that should have been there and failed to add the real one. ACCA flags this doubling trap specifically. Errors of commission between two expense headings do not change profit, but they can still change tax where one heading is allowable and the other is not, for example client entertaining, which HMRC’s Business Income Manual at BIM45000 says is generally not deductible even when it is a genuine business expense, coded to a general expenses heading.

What if the error is only found after the accounts are signed?

If the accounts have already been approved, the error is a prior period error. FRS 102 paragraph 10.19 defines prior period errors as omissions from, and misstatements in, earlier financial statements arising from failing to use, or misusing, reliable information that was available when those statements were authorised. Paragraph 10.20 says these include mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. Under paragraph 10.21 a material prior period error is corrected retrospectively in the first financial statements authorised after it is discovered, by restating the comparatives. An immaterial error is simply corrected in the current year. The full rules, including disclosures, are in accounting policies, estimates and errors.

What does a bookkeeping error mean for tax?

If the error has fed into a tax return that has been filed, the return is wrong. For VAT, VAT Notice 700/45 allows net errors of up to £10,000, or up to £50,000 where they do not exceed 1% of the box 6 figure for the period of discovery, to be corrected on the next return; larger or deliberate errors must be reported separately. See correcting VAT errors. For income tax and corporation tax, the usual route is to amend the return within the time allowed; see amending a tax return.

The behaviour behind the error decides whether a penalty applies. Paragraph 3 of Schedule 24 to the Finance Act 2007 treats an inaccuracy as careless if it is due to a failure to take reasonable care. It also says that an inaccuracy which was neither careless nor deliberate when the return was filed is treated as careless if the person later discovers it and does not take reasonable steps to tell HMRC. An honest bookkeeping slip can therefore become a penalty problem simply by being left uncorrected. The penalty ranges are set out in HMRC penalties for tax return errors.

How can a business reduce bookkeeping errors?

  • Reconcile bank, credit card and loan accounts monthly, not just at the year end.
  • Reconcile supplier statements for the main suppliers and chase unexplained customer balances.
  • Use a consistent chart of accounts with clear descriptions so that costs are coded the same way every time.
  • Set a capitalisation policy so that the line between repairs and fixed assets is decided once, not item by item.
  • Compare each month’s profit and loss with the same month last year and ask why any heading has moved sharply.
  • Have someone other than the bookkeeper review manual journals and year end adjustments.

Section 386 of the Companies Act 2006 requires company accounting records to disclose the financial position with reasonable accuracy at any time. Regular reconciliation is what makes that possible; finding errors only at the year end is too late to meet it.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.