5 Common Bookkeeping Mistakes
Bookkeeping is an essential aspect of any business.
Accurate bookkeeping helps a company track its financial health, monitor expenses, and make informed decisions.
However, mistakes in bookkeeping can lead to inaccurate financial statements, legal repercussions, and tax problems.
In this post, we will discuss five common bookkeeping mistakes and how to avoid them.
1. Not keeping receipts
One of the most common mistakes in bookkeeping is not keeping receipts. Receipts are crucial documents that show the amount spent, the date of purchase, and what was purchased. They provide a paper trail that is necessary to support expenses and deductions for tax purposes. Failure to keep receipts can lead to missed deductions, inaccurate financial statements, and legal repercussions.
To avoid this mistake, businesses should establish a system for keeping receipts.
This can be done through physical or digital storage, depending on the company's preference. Abigail’s Ventures coaches business owners on how to use the QuickBooks Online Mobile App to take photos of receipts that automatically go into their bookkeeping software.
Physical storage can involve filing receipts in folders or envelopes, while digital storage can include scanning receipts and storing them in a cloud-based system. The important thing is to ensure that receipts are organized, easy to access, and kept for the required period.
2. Mixing personal and business expenses
Another common bookkeeping mistake is mixing personal and business expenses. This mistake can occur when business owners use personal accounts or credit cards to make business purchases or vice versa. This can lead to confusion when tracking expenses, inaccurate financial statements, and tax issues.
To avoid this mistake, businesses should maintain separate accounts for personal and business expenses.
This can be achieved by opening separate bank accounts and credit cards for the business. This will make it easier to track business expenses and ensure that personal expenses are not included in the business's financial statements.
3. Not reconciling accounts
Reconciling accounts involves comparing financial records to ensure that they are accurate and complete. Failure to reconcile accounts can lead to inaccurate financial statements, missed payments, and cash flow problems.
To avoid this mistake, businesses should reconcile their accounts monthly. This can involve comparing bank statements, credit card statements, and other financial records to ensure that their bookkeeping system and records match. Any discrepancies should be investigated and resolved promptly.
4. Forgetting to record expenses
Forgetting to record expenses is another common bookkeeping mistake. This can occur when business owners are busy and do not have a system in place to track expenses. This can lead to inaccurate financial statements and tax problems.
To avoid this mistake, businesses should establish a system for recording expenses. This can involve using accounting software, spreadsheets, or a simple ledger. The important thing is to ensure that all expenses are recorded promptly and accurately. If mistakes 2 and 3 are followed than forgetting expenses shouldn’t happen.
5. Not keeping up with tax obligations
Finally, not keeping up with tax obligations is a common bookkeeping mistake. This can occur when businesses do not track their income and expenses correctly, resulting in inaccurate tax returns and penalties.
To avoid this mistake, businesses should keep track of their income and expenses throughout the year. This can be done using accounting software or a spreadsheet. Additionally, businesses should stay up to date with tax laws and regulations to ensure that they are filing their tax returns correctly and on time.
In conclusion, bookkeeping is a critical aspect of running a successful business. Avoiding common bookkeeping mistakes can save businesses time and money in the long run. By keeping receipts, separating personal and business expenses, reconciling accounts, recording expenses, and keeping up with tax obligations, businesses can ensure accurate financial records.
