Meaning Of Undercast And Overcast In Accounting
Casting (totaling) errors in a journal are also known as casting error. Understated and overstated are two terms used to describe the inaccuracy of accounting figures. Understated is also called Undercast while overstated is also called overcast. Accountants make use of these terms mainly when reviewing financial statements of a firm. The terms are also used in other situations and are often found in a company’s general ledger or subsidiary journals. Accounting errors can mislead the users of financial statements during decisions making.
Meaning Of Understated
What is the meaning of Undercasting in accounting? An amount is said to be Understated or undercasted if a reported amount is not correct and the reported amount is less than the actual amount. Let me illustrate it with an example, an accountant or auditor may issue a statement stating that a company’s inventory account has an understated balance. This shows that the reported balance — $13,000, for instance — should actually be $15,000. This error will occur in two accounts as double-entry accounting requires two accounts to be opened in every entry an accountant posts into the general ledger.
Meaning Of Overstated
What does overstated mean in accounting? In accounting terminology, Overstated or overcast is the opposite of understated. This term is used to describe an incorrect reported amount that is higher than the actual amount. Let us use the previous inventory example, an accountant determines the balance is $17,000; the balance should be $15,000, we can say that the amount is an overstated amount. Another account will also have the same error, due to the requirements for double-entry accounting principle.
When an accountant discovers an understated or overstated balance, a research is needed to discover the error. Different types of errors can create these errors. The most common errors are Double-posted entries, transposed numbers or incorrect amounts entered into the general ledger. The error will occur in two accounts, which will lead the accountant to discover both sides of the entry.
Correcting Undercast And Overcast
Correcting an understated or overstated account is not very difficult, it can be done easily if accountants or students understand how it works. The accountant needs to reverse the amount of the incorrect entry. New calculations will be needed to help in determining the correct amount to enter into accounts. Prior to making the corrections, accountants need paperwork to prove the validity of the entry. In some cases, an authorization by the manager may be needed to ensure that the correction is accurate and valid for entering into the general ledger