Bookkeeping errors can have serious consequences for a business, such as inaccurate financial statements, tax problems, and even legal issues. Here are five common bookkeeping errors and how to avoid them:
Data Errors
Data entry errors can occur when numbers are typed incorrectly, transposed, or omitted altogether. These errors can lead to inaccurate financial statements and tax filings. To avoid data entry errors, consider using bookkeeping software with automated data entry features or use a double-entry system to verify accuracy.
Co-Mingling Business & Personal
Mixing personal and business expenses is a common mistake made by small business owners. It can make it difficult to track business expenses and can result in inaccurate financial statements. To avoid this error, open a separate bank account for business transactions and use it exclusively for business-related expenses.
Opening a business bank account is easy! Check out my post here about how to quickly and successfully set up a business bank account. Also included is my list of (what I consider) necessary accounts.
Not Reconciling Accounts
Failing to reconcile accounts can lead to errors in financial statements and cash flow problems. Reconciling involves comparing bank statements to bookkeeping records to ensure accuracy. To avoid this error, set aside time each month to reconcile accounts and investigate any discrepancies.
Check out my article for what to look for when reconciling your bank account. And no–just pushing “reconcile” in Quickbooks does not count if you have outstanding transactions that are a mess! Learn to reconcile here!
No Data Back Ups
Not backing up bookkeeping data can result in the loss of critical financial information in the event of a computer crash or other data loss. To avoid this error, regularly backup bookkeeping data to an external hard drive or cloud-based storage system. With the rise of cloud accounting systems, this has become less of a threat. Even using cloud based systems, I recommend saving a PDF version of the following reports each month:
- Profit and Loss
- Balance Sheet
- General Ledger
Ignoring Tax Deadlines
Failing to meet tax deadlines can result in costly penalties and interest charges. To avoid this error, keep track of all tax deadlines and file tax returns on time or consider hiring a professional bookkeeper or accountant to handle tax filings. Read that again..
Taxes get a lot of small businesses in a bind. If you are unsure of the taxes you should be paying, speak to a local professional and they should be able to help
Conclusion
By being aware of these common bookkeeping errors and taking proactive steps to avoid them, businesses can maintain accurate financial records and avoid potential problems down the road.
Any questions? Leave me a comment and I will get back to you!