What is a transposition error in accounting?

A transposition error occurs when digits in a number are switched or rearranged when recording financial information. This can lead to discrepancies in the financial records. For example, if an accountant intends to record the amount $123 but accidentally writes $132 instead, this is a classic example of a transposition error.

This type of mistake typically manifests itself in number misrecording, and it is important for accountants to identify and rectify these errors to ensure that financial statements accurately represent the company's financial position.

Understanding this concept is crucial because, despite being seemingly minor, transposition errors can lead to significant discrepancies in accounting records if not caught early.