What is a correcting entry?

A correcting entry is a journal entry made to fix an error in a previously recorded transaction, either reversing the incorrect entry and recording correctly or making a single entry to adjust the accounts to proper balances. For professional service firms, correcting entries maintains accurate records when mistakes are discovered.

Key characteristics

• Fixes recording errors

• May reverse and rerecord

• Or adjust directly

• Should be documented

• Part of error correction

• Maintains accurate records

Why it matters for professional service firms

Errors happen and must be corrected properly. Simply deleting incorrect entries destroys the audit trail. Professional service firms should use correcting entries with documentation explaining what was wrong and how it was fixed.

Real-world example

Tom recorded a $4,200 office supplies expense that should have been $2,400. Correcting entry: credit office supplies expense $1,800 to reduce to the correct amount, debit prepaid expenses $1,800 (the item was actually a prepaid annual subscription). Memo documented: original entry error, correct treatment, and authorization. Trail maintained.