Common Bookkeeping Errors That Small Businesses Should Avoid

Having a small business is a dream come true, but is it easy? As a small business owner, you know better. You have everything on your plate, including bookkeeping. And bookkeeping is not something you want to ignore.

Getting accounting software, gathering all the bills, and making their entry isn’t enough. Most people lack a basic understanding of the accounting policies, leading to bookkeeping mistakes.

If customers are the life blood of the organization and employees the heart, good accounting is the backbone. So, get the best bookkeeping services and avoid the common bookkeeping errors that small businesses make.

Common Bookkeeping Errors That You Should Avoid

Small business bookkeeping services can help you avoid these common bookkeeping mistakes.

No Safekeeping of Receipts

In business, an expense is an expense, no matter how small it is. The biggest mistake businesses make when they do the accounting by themselves is that they don’t keep receipts safe. Believing that the IRS doesn’t care for receipts less than $75, businesses don’t keep them. But these little receipts can help you claim a deduction from your profits and lower your tax liabilities. Also, they help you keep track of your expenses. These small leaks can sum up to huge amounts; thus, keeping a tab on them is essential.

Improper Classification of Employees

There is a difference between full-time employees, part-time employees, contractors, and freelancers. Permanent employees are entitled to pre-tax and post-tax deductions. Non-recording of these deductions can land you into legal trouble.

Ignoring Bank Reconciliation

Your business’s bank records are crucial to ascertain your earnings and record your expenses. Many times, your books and bank statements differ. Thus, bank reconciliation is carried out at the end of every month. It brings both records into harmony.

As a business owner, having no knowledge of accounting policies, you might omit this crucial step of bookkeeping. If you don’t, your books will mismatch, causing severe setbacks.

No Differentiation Between Personal and Business Expenses

Even if you are the sole proprietor of a business, you can’t charge your personal expenses to the books. They are deducted from your capital invested.

But small businesses don’t know it, and when they sit down to look at the expenses, they realize that they spent way too much business money on personal stuff.

Thus, open a separate bank account for your business. Keep all the business-related money in that account only. Do not deposit any money in your personal account. Since this is your business, you will need money. You need to make proper entry of it in your business accounts. Either you can show it as a salary drawn or you can debit it from the capital invested and name it your drawings. But keep your business and personal expenses strictly separate.

Improper Classification of Assets

It is a general accounting policy that fixed assets are capitalized, and since they are used over the years, they are depreciated every year, and the amount is debited from the Profit and Loss account.

But what most businesses do is that they debit the entire amount from the Profit and loss account in the first year itself, considering it a one-time expense. It is incorrect and distorts the real picture of the financial statements.

Thus, a small business bookkeeping service provider is important for your business, so you don’t make these mistakes that can cause a setback for your business. 

Improper Sales Tax Deduction

“What do you know about Sales Tax and its deduction?” Most of the time, business owners answer it incorrectly. Sales tax is not everyone’s cup of tea, and handling it on your own results in under-deduction, over-deduction, or non-deduction of sales tax from total sales.

Evading sales tax can cause strict actions against your business. It also results in tax penalties which are not good for any business.

Non-Recording of Reimbursable Expenses

Certain expenses can be reimbursed if you have properly recorded them in your books—for example, payments made to government departments. But being a business owner, you might lack the knowledge of these expenses, resulting in monetary loss to your business.

Not Understanding Credit Agreements

Every business needs finance. But finance comes at an interest whether you borrow it from your friends, family, or banks. Banks enter into credit agreements, and you need to make regular payments of principal and interest to the bank.

These business loans require proper recording in the books of accounts. The interest should be charged correctly, and the repayments should be made on time to avoid penal interest. Only an expert bookkeeper can do it correctly. So, don’t think twice about consulting expert bookkeeping services in Mesa.

Over-Dependence on Accounting Software

The accounting software is meant to aid you, but it only records the data you offer it. Yes, it points out mistakes, but not every time. Without any accounting knowledge, it is difficult for you to catch these errors which are easily detectable by any expert accountant.

Thus, invest in an accountant or hire the bookkeeping services..

DIY Bookkeeping

Bookkeeping is not a piece of cake. It requires in-depth knowledge of the subject to carry it out effectively. So, do you think you can do it?

Even if you can, you can try multitasking later. Presently, you must focus on expanding your business. Wearing multiple hats will only wear you out. It’s not healthy and bookkeeping requires focus, just like other functions of your business do.

Improper Communication

Your bookkeeper will fail to present your books of accounts truly and fairly if you fail to provide her with the adequate information to draw accounts. It is the case with most small businesses where businesses fail to keep proper records and it makes the job of the bookkeeper difficult and also results in errors in accounting records.

Conclusion

Your accounting records define your profits. One tax investigation, and it will all be in vain.

Bookkeeping is a serious job, and one must not take it as “just another” part of business. It requires a professional approach, and only experts should be handed over the task. Thus, invest in small business bookkeeping services and keep your accounting records up to the mark.   

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