In this article, we are going to be looking at the eight most common bookkeeping mistakes to avoid. From small businesses to large corporations, bookkeeping is an integral part of any business. The job of bookkeeping might not be the most alluring profession, but it is necessary to keep a business running smoothly. Committing even the smallest of errors can cost a company greatly.
The Eight Most Common Bookkeeping Mistakes
- Combining Personal and Business Checking Account: Your business checking account should be a separate checking account not mingled with your personal checking account. This is an eyesore to the IRS and to any sophisticated investor, because when you mix the two, it’s very hard to account for what is business and what is yours. If you had a separate checking account now, it doesn’t mean you should run into your bank and ask for a business checking account because they’re going to give you a checking account with a lot of fees and a lot of services that you just don’t need. So just go in and ask for another personal checking account, they’ll be happy to open it because every checking account that you open with them is another source of income for them.
- Doing Bank Reconciliations: Bank reconciliation is when you balance your books to what the bank says. When you say this is the activity I had for the month and it matches what the bank says. This is very important for many reasons, because the bank will actually be more accurate than you may be in your books. Your bank reconciliation will reveal any data entry errors you make, such as double or missing entries forgetting to put a check in your check register or writing one number down and entering it into your check register another way and then by going over and reconciling or doing what we call bank recs, you will find these areas in your books will be more accurate.
- Keeping Your Receipts: These sounds like hey how can this be important, but unless you’ve been audited by the IRS, it’s really hard to grasp the importance of keeping receipts. Many people believe that you can just track these expenses through your bank statement or your credit card statement. But that’s not necessarily true, because your bank statement or your credit card statement or your credit union statement will say you spend so much on this and here’s where you spent it. Here’s the amount but the auditor will say how do I know this is personal and not business. That’s when you pull out the little paper receipt.
- Shoebox Bookkeeping: If you want to know what you are doing wrong in bookkeeping, then ask yourself if you are doing shoebox bookkeeping. This usually involves taking an empty shoebox and putting your financial paperwork in the box.
- Manual Systems and Spreadsheets: A manual book system and spreadsheet is a good way to track financial information. However, spreadsheets fall short when it comes to tracking where your funds come from and go to.
- Not Being Involved: Not being involved in the business of bookkeeping of your business would be a big mistake. Be involved and learn. Even if a professional accountant sets u your bookkeeping system, you should know it in and out.
- Lack of Digital Bookkeeping: More and more financial trails and transactions occur through digital mediums. Your bookkeeping system should be equipped for this. There are a variety of accounting applications that synchronize with your business’s mail and shopping cart to provide a streamlined bookkeeping system.
- Improper Classification of Employees: One of the mistake business owners make with bookkeeping is not classifying their employees properly. This happens when a business has both employees working directly at the office and independent contractors. To avoid paying too much tax, it is necessary for these employees are classified properly.
It is important to look at your business and determine if any of these mistakes applies to your business so as to effect changes where necessary. You can turn the bookkeeping task into something that would result to a positive change in your business by going through the eight most common bookkeeping mistakes I have talked about