Accounting mistakes happen occasionally, but you can avoid numerous common mistakes with proper preparation and planning. Remember, it typically takes more time to rectify an error than to get it right initially.
Interestingly, it’s also cheaper to recognize and rectify errors early instead of waiting to correct the issue later. While some accounting errors are minor and insignificant, others are more serious and could affect your business’s economic health considerably.
Over time, poor practices could distort the reality of your business’s fiscal health. In severe instances, repeated accounting errors and bad practices could drive your company toward insolvency. Here’s a list of common accounting mistakes you should avoid.
1. Not Following Accounting Procedures
Even small business proprietors, freelancers, and self-employed persons must set up formal, detailed, and documented procedures for managing accounting and bookkeeping procedures as well as for conducting other routine tasks.
A useful step involves developing standardized checklists and forms to complete to maintain accuracy and consistency. For instance, you’ll want to document a procedure for setting up new merchants.
You’ll require the vendor’s address, name, Employer Identification Number, and telephone number among other documents, for instance, insurance certificates, recommendation letters, or signed contracts. Then you’ll have to input the information into the accounting software so you can process payments.
You’ll want to take the time required to consider the information you require to gather from your merchants, develop a standardized checklist or form to ensure you obtain that information and have a written policy, which your workers can follow.
2. Not Reconciling Accounting Books with Bank Accounts
It’s imperative that your company reconciles its accounts often. Reconciling involves checking that an account balance as recorded in your account books is correct and accurate, ensuring that it matches the actual bank account balance.
Occasionally, you might not record small expenses, however; it’s important you reconcile your accounts from your company’s bank cash to the payable accounts. This way, you’ll track your economic situation accurately. Small businesses must reconcile their books monthly to ensure the accurate recording of transactions to prevent their books from being uncoordinated with the actual status of their accounts.
3. Omission Errors
Whether you’re purchasing inventory or collecting consumer payments, you handle transactions constantly. The outflow and inflow of cash at times cause company activities to slip through the cracks.
When you don’t record transactions, they’re omission errors. Beware that unrecorded business costs can create huge problems while inaccurate economic records create problems with measuring profitability and filing business taxes. It’s important you record each business transaction, even seemingly unimportant ones.
Consider organizing minor expenses into the suitable accounts and maintain the receipts. For instance, petty cash is a small amount of money you have on hand. Most companies use this fund to cover inexpensive items.
If you purchase something with petty cash, document it in your accounting ledger. If you don’t do so, you’ll end up with accounting mistakes in the future.
4. Not Seeking Assistance when Required
When managing a developing business, you can’t do it yourself. Ask for assistance where you know it’s necessary. Perhaps you enjoy doing the bookkeeping for your company but require assistance with processing payroll or answering the phones.
Recognize your strengths and outsource the weak areas. If you postpone seeking assistance, you’ll incur needless expenses when it comes to sorting out the mess.
5. Not Separating Business and Personal Accounts
It might seem obvious but failing to separate these accounts is a common trap for those starting out. Maintaining your business finances in a single place is necessary to avoid costly mistakes.
6. Not Having a Budget
Develop a budget so you’ll have a baseline to judge your company’s operating results. Budgets aren’t just beneficial in controlling overspending. You can use it to establish practical, written economic goals.
7. Data Entry Mistakes
Data entry mistakes occur occasionally and while you can’t prevent all of them, you can develop a policy to conduct different reconciliations in a timely fashion. This way, you’ll detect data entries fast and rectification can take place.
Accounting mistakes are bound to take place, but appropriate business’s procedures and practices will help you recognize and prevent those mistakes while maintaining your company’s financial health.
Dailey Bookkeeping Services is a Xero Certified SILVER Partner and a QuickBooks Online Certified Advisor, so if we can help you with your accounting needs, just give us a call, we would love to help you! The author, Jacqueline Dailey is a Certified Public Bookkeeper, an Advanced Certified QuickBooks and QuickBooks Online ProAdvisor, and a Sleeter Group Certified QuickBooks Consultant.
We work remotely so we can work with any company located in the U.S. If we can help you with this process or provide you with custom reporting, please give us a call. If we cannot help you, we will refer you to someone who can! Feel free to reach out to us any time!