For every small-scale business, bookkeeping is often seen as the necessary part of the business. The tedious task of bookkeeping can often take up hours and hours of your time. This is the primary reason why a majority of business owners do not keep their finances up-to-date on a monthly basis.
As mundane as bookkeeping may appear, maintaining books of accounts is important for the management and growth of every business. But it is only with the accurate and consistent information of your accounts that you can manage your company’s finances effectively. Therefore, you need to have an error-free financial statement. However, there are some bookkeeping mistakes made by small businesses that have a significant impact on business operations. Hence, we’ve listed a few common bookkeeping mistakes that you should avoid.
Improper Record Keeping
It is easy to lose receipts or forget about those small expenses that seem insignificant. However, these minor transactions can certainly affect your books of account. Therefore, make sure that you record each and every transaction irrespective of its size. Simultaneously, keep all the invoices with you for future reference in case something goes wrong. When audits are conducted, accurate records of income and expenses could end up saving thousands of dollars.
Failure to Categorize Income and Expenses
Accurately recording income and expenses in the correct categories is necessary to avoid any mistakes. Incorrectly categorizing your income and expense can have negative implications as well as cause the organization to pay more tax than usual. Your profitability can be affected and plus, it will show an incorrect statement. If you have an incorrect income statement, then it may make it difficult for you to obtain credit or loans from financial institutions and investors. Hence, see to it that you are well-versed with all the accounting terms so that you do not enter entries wrongly.
Not Double Checking the Entries
By double-checking the data that you enter in your financial records, you simply reduce the chances that there will be any inaccuracies. It will make sure that the financial statements are error-free and are good to go for auditing. This will also ensure that you are not missing any important deadlines or due date to make or collect any payment. Late payment can attract interest rates and late collection can lead to bad debts and thus, affect your working capital. Therefore, it’s best that you go through your entries once again or choose an accountant who will provide you with high-quality bookkeeping services. A professional accountant will check your entries again and see to it that there are no errors in your financial statements.
No Backup of Data
Whether you are using a paper filing system or an electronic system, you need to make sure that you have a proper backup plan in place. Ideally, you need to have copies of all your records stored separately. For this purpose, there are many accounting software that you can choose. Also, it is recommended that you have your data stored in the form of hard copies in case your accounting software cause any problem. Backup data is protected in case of events like fire or database crash. It is important for every business whether small-scale or large-scale to have a backup to prevent potential loss or missing out on key data.
Not Having Separate Bank Accounts
Not having separate bank accounts for personal and business activities can become an issue. During the auditing process, you may need to provide complete records of business-related activities that are separate from your personal activities. Therefore, see to it that your bank statements are properly reconciled on a monthly basis. It will help you to keep a track of your income and expenses and also prevent problems like theft or fraud within your company. Having a separate bank account will reduce any chance of manipulation within your company as there will be a proper record of how much funds are deposited and withdrawn.
Maintaining your books of accounts can be difficult especially when your business is growing and you have multiple transactions taking place daily. In such cases, you are bound to make bookkeeping mistakes if you do not have a dedicated team managing your accounts. However, bookkeeping mistakes made by small businesses can be avoided by consulting professional accountants. In other words, to avoid bookkeeping mistakes, consider outsourcing your accounting services to a team of experts.