What are the common mistakes in bookkeeping?
- Forgetting Small Expenses
- Not Backing up Documents
- Combining Personal and Business Accounts
- Failing to Sync Records With Bank Accounts
- Neglecting Taxes
Bookkeeping is a process of recording all the financial transactions of a company. The transactions include both income and expenses. This practice may help you keep track of where your business is going. It keeps your records organized, helps you budget your money, helps you comply with tax requirements, and gives you a clearer vision of your goals. Neglecting this task can lead to many problems. In line with this, below is a list of common mistakes in bookkeeping.
Forgetting Small Expenses
If your business primarily consists of big-ticket purchases and transactions, you may tend to disregard recording small expenses. In time, this can lead to a snowball effect, with each expense piling over one another. When you look at your bank account, you will be surprised that your records don’t match it.
You may want to keep a record of even the smallest expenses to maintain discipline in your bookkeeping. If you can keep track of these, then you won’t forget to also keep receipts of big transactions as well.
Not Backing Up Documents
Just because the year is done doesn’t mean that you can discard your records. Even if 5 years have gone by, having a backup of your old records is useful. It can indicate how your business grew. Another benefit of keeping old documents is being able to show proofs on investigations and audits.
It is recommended to have both physical and digital copies of your files because having one without the other can be risky. Having papers safely locked in drawers and cabinets or keeping digital copies on your computer is not enough. Accidents such as fire and flooding can destroy your office and with it your files. Having 1 or more backup on your hard drive or the cloud can save you from the headache of lost documents.
Combining Personal and Business Accounts
If you are starting a small business for the first time there is a tendency to mix your personal and business finances. Doing so can make you confused in the long run.
Having both on a single bank account can make it hard to keep track of what is personal and what is for business. Bookkeeping would be a nightmare because you have to spend large amounts of time just to separate the two. When this happens you can also run into problems when you get audited because you’ll have a hard time providing proofs of transaction and taxes.
Failing To Sync Records With Bank Accounts
Let’s say that you do your bookkeeping fairly well. That’s great! But you forgot to countercheck the records with the actual finances on your bank account. This process is called “reconciling”. If you forget to record the small transactions you’ll be surprised to see discrepancies. One example is bank fees that you may not be aware of.
Another advantage of reconciling is being able to spot fraudulent transactions. If you reconcile your accounts regularly you can investigate the cause of money theft early.
Another common mistake in bookkeeping is forgetting to deduct sales tax. This is the tax that is included in the price of goods and services. A business has the responsibility to submit this to the government.
If you forget this step your profits may look higher than it is. You can also run into problems when the government audits your finances. Doing this properly can also make your job easier when it’s time to pay your taxes.
No matter how small or big your business is you should not neglect proper bookkeeping. This will keep all your records organized, help you compute your taxes and pay them on time, assist you in monitoring transactions, and guide you on the growth of your company. If you can overcome the common mistakes in bookkeeping, I’m sure that you can face any problems that arise in your business.