The Dangers of Blind Entries in Accounting
Blind entries in accounting lack information about their source or purpose. Although they include essential details like price and date for bookkeeping purposes, they are not supported by any explanation. Due to their lack of transparency, blind entries are discouraged and can raise suspicions of fraudulent activities.
In financial bookkeeping, a blind entry refers to an accounting entry lacking information about its purpose or source. While blind entries do provide essential details like the monetary value and whether it's a debit or credit, they lack any additional explanation for the transaction. Consequently, blind entries are discouraged due to their potential for facilitating fraudulent activities that manipulate the accuracy of financial records.
What Is a Blind Entry in Accounting?
In accounting, a blind entry is a journal entry that lacks an explanatory description of the transaction. It is made without providing any reason or justification for the entry. This type of entry can involve the movement of money or journal entries within different sections of a company's books.
The method of accounting that affects the recording of journals and journal entries is double-entry bookkeeping. It follows a simple principle: every business transaction involves an exchange between two accounts. Therefore, each journal entry is recorded with two columns. For example, when a business owner buys inventory for $1,000 in cash, the entry will show a decrease of $1,000 in the cash account and an increase of $1,000 in the inventory account.
Blind entries are discouraged in accounting due to their lack of transparency and the potential for misuse or fraudulent activities. They can create confusion and make it difficult to understand the reasons behind specific transactions. Therefore, it is essential to provide clear and justified explanations for all journal entries to maintain accurate financial records.
Using Blind Entries
Blind entries are generally discouraged due to their tendency to result in incomplete records. However, there are specific situations where blind entries can be considered appropriate. For instance, if a business sells a single product or service and there is no significant need to distinguish sales from different customers, blind entries can be used. It streamlines the recording process. Nevertheless, in any other context, blind entries should be further examined and investigated.
Blind Entry Example
Oscar and Felix, the owners of ABC Bank, maintain multiple accounts in their books to track revenue streams from various products and business lines. They ensure that all journal entries between accounts are supported by documentation, allowing for proper annual auditing. However, on a specific occasion, Felix makes a transfer from the "security and annuity sales" account to the "lending" account without providing a reason for the transfer. This unexplained journal entry is classified as a blind entry.
Blind entries in accounting can be detrimental to financial records' accuracy and transparency, and their use should be carefully considered and documented. While they may be appropriate in specific situations, it is generally recommended to avoid them and provide clear and justified explanations for all journal entries.