Unlike large corporations, small businesses may not always afford to hire full-time in-house accountants. Most of the accounting work is usually done by the owner or an employee with limited accounting skills. As a result, accounting mistakes might become a concern.
Below are 10 common mistakes committed in small business bookkeeping.
Reconciliation helps to identify errors and correct them. Errors can emerge in the bank entries or in the business records. Therefore, a regular reconciliation of bank statements is essential to identify errors early enough and rectify them before they creep into the final accounts.
Business records represent assets. Losing them can lead to massive losses. Computerized accounting is good for its high speed of processing and accessing records, but sometimes computer systems fail. It’s crucial to have a manual backup for records or at least an electronic backup.
Not all payments are expenses and not all receipts are income. For instance, when you pay for a fixed asset, you don’t count that as an expense. Failure to record accounts properly can lead to inaccurate financial statements.
Some records may be misplaced, lost, or destroyed. This leads to incomplete information. Sometimes the double-entry accounting system is not followed correctly, and this may lead to issues when preparing balance sheets and cash flow statements.
Business finances are not the same as your finances. For instance, if you use business funds for personal expenses, you should account for it as drawings. On the other hand, if you use personal funds to pay for business expenses, you should treat it as capital.
Otherwise, treating yourself and the business as one entity can create huge issues when measuring business net-worth, computing income tax, and profit.
Different employees are entitled to different benefits. Full-time employees, independent contractors, and freelancers should not be put in one category. Wrong classification can cost you a considerable amount of money in employee benefits and lawsuits.
This applies mostly to products or services sold online. It’s a bit complicated to apply sales tax in cloud-based businesses. Some businesses fail to charge sales tax while others fail to report or account for sales tax. This can lead to accumulation of the tax and some huge penalties in the future.
Not all business owners have a solid knowledge of accounting. Besides, tax laws are quite intricate and keep changing. Doing your taxes the wrong way can cost you more.
Seeking help from professional accountants will not just save you valuable time, but it will also ensure that your financial reports are accurate, timely, and look professional.
Basic small business bookkeeping cannot function fittingly without proper communication. Let’s say you incur an expense or receive business funds—then, you have to inform your bookkeeper about it so records can be updated.
Small business owners might feel that financial reporting is done because the government demands it. Financial information is a useful resource that helps a business to monitor its progress and make informed decisions. They’re not just for calculating tax returns for the government.
It’s best to hire competent bookkeepers or accountants. But as a business owner, you have other options available.
Since it’s difficult to learn all accounting rules and still concentrate on your business, why not leave your accounting problems to a CPA firm? This would help you to get high-quality bookkeeping services.
If you’re looking for a reliable CPA firm in Clearwater to manage your books, or business advisors, connect with BAAP CPA and we’ll be glad to help with a free consultation.