The Most Common Bookkeeping Mistakes and How to Fix Them

Bookkeeping is one of the undesirable but unavoidable tasks that small business owners are forced to do. The monotonous and repetitive activity of keeping books can consume much time. Even though it may seem stressful, keeping accurate financial records is essential for effective business administration and expansion. However, there is no justification for your company's bookkeeping records to be a source of anxiety for you. While there are bookkeeping mistakes, you can find solutions for them. We will walk you through some of the most typical errors in bookkeeping and how to fix them.

Why Accurate Bookkeeping is Critical for Small Business Success

As a small business owner, you cannot afford to make bookkeeping mistakes, which can ruin your business. Bigger companies have access to more sophisticated accounting systems, which can assist in the process of eliminating bookkeeping errors. However, making mistakes during the accounting process will make it challenging for a small business to recover. As a result, a small business must ensure that the correct bookkeeping operations are carried out. Here are some reasons accurate bookkeeping is essential:

• To avoid the wrong business plan/decision
• It helps in making the suitable investment
• It saves time and energy
• Effective tax planning and preparation
• Improves cash flow
• Makes it easier to budget

The Most Common Bookkeeping Mistakes

After reviewing the importance of accurate booking, you must learn the most common bookkeeping mistakes and how to fix them.

Mixing Business and Personal Finances

It's not unheard of for people to combine their personal and business finances, particularly when they're just getting their business off the ground. However, doing so is asking for disaster. When you file taxes, the IRS won't be able to distinguish between company and personal expenses. In that event, they are free to investigate your financial matters. In addition, if you owe money to the federal government, the government has the right to go after your finances.

To fix this bookkeeping mistake, you must use a bank account designated specifically for commercial use. You will have a much easier time monitoring your cash flow and determining whether or not you made a profit. Keeping your money in a separate account also helps avoid additional tax headaches. 

Not Keeping Track of Cash Transactions

Forgetting to keep track of your daily transactions is improper, yet another mistake business owners make. You should avoid poor record keeping of your cash transactions because it will render your small business bookkeeping inaccurate. If you don’t keep track of your cash transactions, you won’t be able to know if you made profits or not. 

You can save your receipts electronically to access them from your database readily.  If you have the correct software, keeping track of business expenses won’t be nearly as time-consuming and laborious as manually. To save time and effort at tax time, you can use accounting software to automate converting receipts into expense records. 

Failing to Reconcile Bank Statements Regularly

Another common mistake small businesses make is often failing to reconcile bank statements. The Internal Revenue Service (IRS) may request documentation of every money spent directly relevant to running your business during an audit. Never let a month expire without reconciling your bank statements and accounts. In the event of an audit, you will be able to trace the origin of your cash with more precision. 

Bank statement reconciliation entails checking the bank's account balance record against the company's overall books. The cash column in the cash book details the cash on hand, whereas the bank column details the cash on deposit. The bank, like many others, maintains separate accounts for each customer. Deposits are entered on the credit side of the bank books, and withdrawals are entered on the debit side. Customers will receive their bank statements once a month or at other specified intervals. These checks and balances sometimes line up. The company must determine what went wrong to find a solution. This ensures no details have been missed and all totals add up to one.

Misclassifying Transactions

Depreciable assets, such as computers, furniture, and other office gadgets, are sometimes written off as expenses by business owners. These company assets depreciate with time, losing value to the company. So, the cost of such items cannot be written off entirely in the year of purchase but must be depreciated over time. This occurs when erroneously recorded transactions are discovered during bank reconciliation. Incorrect data entry can occur when a zero is omitted from a number or an extra digit is inserted.

A double-entry accounting system will reveal the problem when the books don't balance. The trick is not to rush through the process so much that you accidentally type "32" instead of "23."

You must write and create an accounting chart to align your transaction. A list of all of the accounts accessible for recording transactions in the general ledger or accounting software of a corporation is referred to as the chart of accounts. To establish a chart of accounts, you must first develop account categories pertinent to your company. After that, you must assign a four-digit numbering system to the funds you create that fit into those categories. Although creating a chart of accounts can be time-consuming, it is essential for gaining insight into your company's finances.

Not Keeping Proper Records of Fixed Assets

Your company is at risk if you do not keep an accurate asset register. For example, you cannot calculate appropriate asset depreciation and tax filings. They play a crucial role in ensuring the reliability and timeliness of financial records. Depreciation can be tracked in this register along with the original purchase price of an asset. Asset register guarantees that corporate assets comply with the tax regulation and always have a transparent view of asset values. Always maintain an accurate record of your fixed assets like lands, real estate and equipment. This will help you have precise information on all your fixed assets, the depreciation and appreciation levels, and the subsequent business decisions to take on each. 

Overlooking the Importance of Regular Bookkeeping

Most small business owners detest keeping their books, so they do not do it or do it wrongly. Every business needs to consider all the financial events that happen in the company. It seems a bit tasking, but the after-effect always benefits the business. Keeping your books up-to-date is as easy as devoting an afternoon or evening once a month. If you have a bookkeeper, ensure they come in frequently to stay on top of things and get the necessary paperwork on time. It may seem obvious, but you must record all the money that enters and leaves your company at the scheduled time. This involves documents like invoices, receipts, vendor payments, and tax returns.

How to Fix Common Bookkeeping Mistakes

When mistakes happen in your bookkeeping, don’t fret. There are solutions that can correct them and help to stop reoccurrence in the future. Below are ways to fix common bookkeeping mistakes in your small business.

Conduct a Comprehensive Review of Your Books

You can correct your bookkeeping mistakes if you conduct a review of your business books. It might not be as often as every week or every month. You just need to thoroughly review it and see if it aligns with what’s happening in the business. Also, note that you can’t do this review in a hurry. You have to create enough time to check all the details meticulously.

Implement an Automated Bookkeeping System

Consult a professional accountant to find out what accounting software they recommend using if you need help. You can attend the training that is being provided by the software company so that you can become familiar with the service.

If you can’t go through the process alone, it is time to hire a professional bookkeeper. You can find them on Adelaide bookkeeping services to grow your ability to keep your books. But which ones are appropriate for you and your company specifically?

Seek Professional Help

It’s okay to need help sometimes, as no one knows it all. If you cannot do your bookkeeping accurately, it’s time to hire a bookkeeper Adelaide to help. Some business owners don't consider paying bookkeepers and accountants worthwhile. This says a lot about the importance people place on their time. It's easy to get bogged down in the numbers and lose track of time if you don't have a professional accountant and bookkeeper. When business owners learn to delegate effectively, they free up valuable time that they can put toward expanding their operations. The best action is to bring in professional bookkeeping services Adelaide. They will help you with taxes and financial decisions while preparing your financial records.

Conclusion

Errors in bookkeeping can result in a significant amount of distress for both you and your business. Incorrectly kept books for your company can result in various adverse outcomes, including losing time and money. And for this reason, you need help from the Kalculators. There will be a series of challenges when you start bookkeeping, but the expertise of The Kalculators can help you avoid them.

The Kalculators provide a wide range of bookkeeping service options in Adelaide that can be customized to meet the needs of any organization, regardless of its size or industry. Get in touch with us right now to learn more about how we can assist you in operating your company more effectively.

Read Also: In 2023, Tips to Make Small Business Bookkeeping Easier
For more information, please send us an email on info@thekalculators.com.au or give us a call on 08 7480 2593.