Sometimes, the purpose of bookkeeping is not met. Financial decisions end up miscalculated because records of past financial performance were inaccurate. These mistakes can be pointed out and avoided. As we've stated many times before, it is imperative to keep up with the necessary evil that is bookkeeping. I know what you are thinking; it is tedious! I agree. It will take time and to some a heavy mental toll. But if you've decided to do the bookkeeping yourself, this article shows the common mistakes our accountants have seen from current clients:
As a small business owner, you are likely wearing many hats. You may be responsible for marketing, sales, product development and more. But one task that you should not have to worry about is bookkeeping. This is a job that can easily be outsourced to a professional bookkeeper. Below are examples of bookkeeping errors that can be avoided if left to a bookkeeper with experience.
Poor Management of Petty Cash
Tracking petty cash expenditures has become a difficult task for most business owners. It is crucial to acquire knowledge on how to track petty cash; a system should be put in place which will help to determine the amount of money that remains in hand for the business and how it has been put to use. One way to get started is by getting a lockbox for petty cash and having receipts for every expenditure covered by that cash in hand.
Poor Communication Between In-house Bookkeeper and Owner
Both the employees and the bookkeeper should stay in constant communication. This is important on so many levels. It helps to minimize errors and enables the bookkeeper to make informed financial needs of the said business. These errors may arise in cases where an employee will purchase supplies and fail to report to the bookkeeper.
Neglect of Reconciliation
It is essential to reconcile the books of a business with bank statements. This helps to determine the financial health of a business. At this point, hiring a highly experienced bookkeeper is recommended since reconciliation is a difficult task. With proper reconciliation, one can discover bank errors before they become intractable problems. Reconciliation will also help the business owner accurately realize the money they have at hand.
With modern technology, everything has been digitalized. Heavy dependence on technology could, however, be harmful. For this reason, there is a need to be prepared if the digitalized data is lost or even hacked. Loss of data can be taken care of if the company has a paper backup. Most businesses lose essential data since they overlook being a paper office. Taxing authorities, for instance, require a paper trail. A paperless office can also be a liability when it comes to auditing.
Neglecting Sales Tax
This applies a more to e-commerce business that it does to traditional brick and mortar businesses. With online shopping taking over the business world, many businesses have overlooked the aspect of sales taxing. This sets a poor record for bookkeeping purposes hence resulting in errors. Besides that, neglecting sales tax can also attract fines and penalties. Every business owner should report sales tax and account for it.
Business owners have a habit of paying for costs from their pockets. These funds might fail to be paid back after they take too long. In the end, they fail to be accounted for, which would result in loss of money and eventually loss of tax deductions. As a business owner, you need to create a policy that will make it easy for the business to track and reimburse expenses appropriately.
Improper Categorization of Expenses
Income and expenses should be appropriately tracked in the right category to ensure correct profit measurements. With the help of an individual with the knowledge of bookkeeping, tax savings can be achieved by understanding the differing tax treatment for every income as well as an expense category.
Take a look around your business venture. Which of the listed errors are you likely to encounter? Bookkeeping is a necessary headache, Accountants Now is happy to see if we can be of any help.
Contact us for a free consultation.