How to account for human error?

Question

Sometimes people make mistakes. The checkout process at stores often involves manual data entry which is error prone. For example, as a customer I could be charged $49.99 for a product priced $49.49.

It's often not worth it to try to recover these tiny differences. However, they cause transactions to become unbalanced in ledger:

2021-09-07 * Store
    Expenses       $  49.49
    Credit Card    $ -49.99

I think it's important to record the fact that an error occurred. Adjusting the real value of the product to reflect the mistake would cause this information to be lost.

How do I properly account for this in ledger?

Answer 1

Does it matter?

In this case you were charged $49.99. Your card record shows $49.99. Your account entries show $49.99. You really did pay $49.99 in expenses, so "expenses" should show $49.99.

If you record the expense as the price you paid, rather than what you thought it was worth, the account will never become unbalanced and you will be satisfying all normal and legal accounting practices, which are concerned only with what you actually paid. Recording errors is not necessary, and is entirely a matter of personal preference. In some cases recording the 'value' rather than the price paid could be a problem. If you were charged $5 for a $500 item, your records need to clearly show that you actually paid $5, not $500.

The fact that it was "worth" $49.49 is irrelevant. Things change their "worth" all the time as prices fluctuate. If you got it on sale for $48.99 would you record $49.49 as expenses and $0.50 as "sale discount"?

Adjusting the real value of the product to reflect the mistake isn't a viable option.

Yes it is. No accounting audit is going to care about a discrepancy like this, even a much larger one.

Unless you specifically wish to keep track of such errors for some reason, ignore them.

Answer 2

I created an Errors account that can be used to absorb the remainders of transactions.

2021-09-07 * Store
    Expenses       $  49.49
    Credit Card    $ -49.99
    Errors

Any remainder will be added to the Errors account and the transaction will be balanced.

Simon Michael correctly points out that this account will absorb even large values, creating opportunities for a typing mistake to go unnoticed. To avoid this pitfall, the overcharged amount should be specified explicitly:

2021-09-07 * Store
    Expenses       $  49.49
    Credit Card    $ -49.99
    Errors         $   0.50

It is now possible to track how much money has been lost due to human error:

ledger balance Errors

It is even possible to figure out where the errors are coming from:

ledger register Errors --related

Answer 3

The way you record it depends on how you want to (or are required to) report the transaction. Here are a few possible scenarios:

• You are paying for the item out of your own pocket and will get reimbursed by your employer. If you consider it your own fault for not noticing the error at the shop, you will be effectively reducing your own petty cash by absorbing the difference. You put in the 2 (unbalanced) entries and record the balancing 50c difference against your petty cash account. You might try to get a refund or store credit which, if successful, you’d record it as a reversal of the petty cash entry.

• You buy the item for your own company and can’t get a refund. The company might absorb the difference as a business expense. The item cost you $49.99 because that’s what you tacitly agreed with at the till. So you record both entries as $49.99.

• You can only claim $49.49 as an expense in your tax return. You enter both (unbalanced) entries, and record the remaining 50c against an undeductible expense. When tax time comes around, you don’t claim any of your undeductible expenses.

The principle is that you first decide what the price legally is. The bookkeeping then follows suit.

Disclaimer: I am not an accountant and this answer is not financial advice. You should consult a suitable professional regarding whichever alternative you pick, especially if the actual numbers are a lot bigger or if there are penalties for getting it wrong.