BOOKKEEPING IS very important because it serves as the foundation of decisive and sound decision making and business planning. It is, thus, very essential and important that the financial records be kept accurate and properly up-to-date. Some businesses try to avoid the tiresome process of maintaining the financial records because they feel that it takes a lot of effort and time. In this event, it would be better if you hire a bookkeeper to do the bookkeeping work and then you can concentrate on the other activities of the business.
The following are some of the most common business bookkeeping mistakes.
Improper keeping of records
Improper keeping of records is a common mistake that most businesses do. It is very easy to lose the receipts or even forget about those small expenditures that seem to be significant. The maintenance of the accurate records month after month, coupled with the proper system of filing, can greatly save you money and time on the amount of taxes on your income.
Proper bookkeeping can also provide the appropriate documentation during IRS auditing. In the case of an impending audit, accurate records of expenses and income can end up saving you a lot of money that you could have otherwise paid as taxes.
Improper categorization of the expenses
The improper categorization of expenses can lead to the improper depiction of the true financial status of the business. You are advised to employ a person that knows how to treat different tax scenarios and how to categorize different expenditures in the books of accounts. The improper categorizing of expenses may also increase your tax liability and you may end up paying more in taxes than you are actually supposed to.
Improper reconciliation of the bank accounts
One of the grave mistakes in bookkeeping is failure to maintain separate bank accounts for business and personal activities. For purposes of auditing, you need to provide business accounts that are complete and different from the expenses that you incur in your personal life. You need to make sure that the bank statements are properly reconciled each and every month so as to identify the potential issues and minimize the errors.
Not having bookkeeping backups
Some people store their bookkeeping information online or at their small business premises servers without any other back up. What will you do if anything happens leading to the loss of all the stored data? You need to back up your bookkeeping information in various formats such as CDs and books.
Improper management of the petty cash
The owners of the businesses, in most cases, operate with some small amount of petty cash, although they have very little or even no knowledge of how to track it properly. You should ensure that you set up the system that allows the tracking of that cash including what it has been used to purchase. You can, for example, buy a lock box for your petty cash and obtain certified receipts for all the disbursements.