Accounting is an integral process of management in any business firm. This assists in record keeping, enhances law compliance as well as making it easier to give forecasts for the future. However, making mistakes while carrying out bookkeeping becomes disastrous for your business. Below are some of the major areas where bookkeeping mistakes may be made and the best way to avoid them.
Not Keeping Personal and Business Finances Separate
The first mistake that many business owners make is not separating the business cash flow from the owners own money. This can complicate things, which in turn make it difficult to keep a record of, expenses and or income earned.
Failing to Record Transactions on Time
Recording transaction a bit late is another possible mistake that results in distortion of financial reports. Recording transactions as they occur is essential because if you delay sometimes, you realize you have forgotten some details or maybe never recorded it at all. One should also be consistent on the frequency of updating your books depending on the frequency of your transactions.
Ignoring Small Expenses
Dynamic expenses are minor and do not seem significant, but the expense is accumulated over time. Failure to doing so results to some differences in the recorded books of account. It is always important to expense every dime spent no matter how little, so as to have good records of your business status.
Failing to Reconcile accounts periodically
Reconciliation involves comparing the amount on your books with the total value appearing on your bank statement. Some organizations avoid it and that is why they are at risk of having unearthing errors or even fraud. One important thing you should have a goal of doing is to balance your accounts at least once in every one month as it will help in identifying any mistakes made in the records that you hold.
Non-Supportive of Financial Documentation
It is disastrous when the firm loses the financial records because of system failure, or an employee deleted them accidentally. Not backing up data is quite dangerous for a business. You should maintain other records in the cloud, or use flash drives or other removable storage media to back them up weekly, preferably daily.
No Understanding Tax Regulations
Taxes are always a sensitive topic, and failure to follow the laid down law may lead to lot of loss through penalties and fines. Here, some business owners are not well advised when it comes to keeping proper tax records and meeting deadlines. A business should always update himself or herself with current tax laws and seek help from a qualified accountant if the case arises.
Doing It All Yourself
Ignoring professional bookkeeping may be beneficial for financial health in the short run, but it can lead to some fatal mistakes if you are inexperienced. This way, professional bookkeeping or use of good bookkeeping software will help in keeping proper, up to date records.
Overlooking Financial Reports
Accounting is not just about taking records; it is also about processing the information so that it can be of use at a glance on business performance. By excluding typical financial statements such as profit and loss, or cash flow statements, you may be limiting your decision-making ability. You should look at these reports periodically to check on your financial situation.
