The 12 Most Common Bookkeeping Mistakes And How to Avoid Them Bench Accounting

For a more detailed rundown of how to keep business records, check out Bench’s guide to how long to keep business tax records. They can let you know whether you should be opting for itemized or standard deductions in order to save the most money. And they can help you figure out which expenses you can report to the IRS, and which you can’t.

We don’t guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services. The initial years of a new business are extremely overwhelming, but failing to keep your books current will only make the situation worse. If your books are suffering because business is booming, that’s a sure sign you need to bring on an extra hand. Costly errors will be caught more quickly, and your business operations will be more efficient in general. On the other hand, if you happen to pick up a new $250 printer, the purchase needs to be logged differently. It’s not the amount that matters, it’s the useful life of the items you purchased.

Mistake 2: Letting Tax Time Sneak Up

And if they lack https://bookkeeping-reviews.com/ skills, the results may be crippling for your small business. Many business managers make the mistake of not differentiating accounts for their personal and business expenditures. However, mixing up the owner’s money with business money is the worst endeavour for any business. The cloud infrastructure has made it easy for business owners to go paperless and access their business from any part of the world. The data is available 24/7, and there’s no need to keep a hard copy of every aspect of your business. Reimbursable expenses are the ones that you make on behalf of your client.

After all, there’s only so much work to do, and it doesn’t make sense to hire additional staff just for the purpose of having checks and balances. Unfortunately, inadequate checks and balances can spell big trouble for your business. Sonya Tapley has 15 years of accounting experience with both very small and very large organizations. She started Cloud Friday because small business is where all the passion for creation and service is found. Cloud Friday’s goal is to always make sure we do things with honesty and integrity. For instance, update your income logs at the end of each day.

Not backing up your books is another of the most common bookkeeping mistakes. The last thing you want to do is to work hard at keeping good records, and then have all of your data disappear with no way to get it back. The first step to properly backed up records is to find and use a good accounting software program. One way to relieve yourself from some bookkeeping work and common bookkeeping mistakes is to outsource the task altogether. It’s a smart investment to hire someone more specialized, who can dig into your books and give you proper advice and guidance. The bookkeeper you choose should be someone you can trust to help you grow your business.

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But you need to make sure things are done correctly, so your books reflect your actual financial situation. Here are some common bookkeeping mistakes and tips on how to avoid them. However, most business owners can’t do their primary job effectively if they take on too large of a load.

Undeposited funds on the books is another way revenue can be overstated. As mentioned above, this can cause you to overpay your taxes and make incorrect assumptions about your business’s growth. When you reconcile your accounts at the end of the month, you validate the information in your books against an external document . Doing this not only helps you detect and address errors, but it also helps you prevent fraud. It’s common for one person to handle all financial matters in a small business.

Set up separate bank accounts for business and personal funds, and deposit all your business income in the business bank account. Get a business credit card and use it to make business purchases. Luckily, most of the really bad mistakes are easy to prevent. Here are the top 5 financial errors small business owners make, according to bookkeepers—and how you can avoid them.

If xero accounting community looking to improve your confidence and develop your bookkeeping skills, we’ve listed a few online bookkeeping courses you can try for free. It’s also worth seeing if you can access any free resources with your bookkeeping software as some do include training and support. The main thing is that everything is organised and you’re filing your invoices, bank statements, and receipts in order.

This could also take many forms, such as mismatching debits and credits or errors when transferring sums from the income statement to the cash flow statement. It can produce very specific and detailed reports for you to use to make business decisions. Again, a workflow and a predetermined process can help avoid this error.

Finding and eliminating accounting errors

If you want to expand your business, you’ll need to hand off the bookkeeping responsibilities sooner rather than later. As your company grows and increases in complexity, so does your bookkeeping. A professional bookkeeper will know what to record, how to record it, and most importantly, the accounting changes that affect a business on an ongoing basis.

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And make sure you review your business’s bank statements — including images of canceled checks — on a monthly basis. There’s no reason your business’s bookkeeping records have to bring you stress. Some of the most common bookkeeping mistakes are easily fixed.

Failing to properly classify employees.

Be sure to set up a system which allows you to track the cash kept on hand for the business and what it is being used for. Buying a petty cash lock box from your local office depot and obtaining receipts for all disbursements is a great way to start. If you have employees, a common bookkeeping mistake is not creating reimbursable expense rules for your team. This document should serve as a guide to gauge what your employees can and cannot write off as a business expense. If your small business operates using petty cash, you should make sure there’s a dedicated person to manage and track it to avoid theft and abuse.

It’s easy to push your bookkeeping responsibilities aside–especially when you’re not confident you’re doing your books correctly. However, if you wait until year-end to start recording and organizing, you’re setting yourself up for a lot of stress–and a lot of errors. If this is the case for you, be careful to properly classify them. Making a mistake on this can cause you to misfile taxes and make overpayments. That’s why it’s important to always know and clarify the employment status of your people.

Therefore, they require you to send in your tax payments quarterly. Do you know the difference between an employee and a contractor? Many people don’t, and designating employees incorrectly can result in IRS trouble. The IRS has specific guidelines to help you determine whether you’re hiring a contractor or an employee.Check out those guidelines here. Sales tax reporting is a necessary part of operating a business that sells items for which sales tax is charged. You might be interested to know that you have to fill out a sales tax reporting form in many states even if you haven’t had any sales for the year.

Doing the books but not looking at the results could be even worse. When you keep putting your bookkeeping tasks off to the side for later, you’re eventually faced with a mountain of receipts to work through. That’s a recipe for disaster — deadline pressure only makes a costly error more likely. Keeping your financial records organized can’t be something that falls by the wayside — it’s a priority when it comes to success and growth.

For example, too many receivables, loans, inaccurate sales goals, and ignoring financial statements. The person handling the bookkeeping should be able to identify these problems and work on the solutions. The road to business failure is paved with unrecorded business transactions and poorly organized books.

Entrepreneurs must be on top of all financial aspects of their small businesses to ensure financial stability. When it comes to audits, a paperless office can actually be a major liability, especially in the event of technical problems. Taxing authorities like the IRS want to see a paper trail that includes clearly visible documentation and a well-organized system of paper backups. Apps that save your receipts can make day-to-day operations easier, but it’s still important to keep a backup of your financials for at least seven years. To avoid the financial headaches that come with bookkeeping mismanagement, it’s important first to be aware of the pitfalls that can ensnare you. Reconciliation errors are errors that occur during the process of making all the accounts or books consistent or congruent.