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Common Bookkeeping Errors And Techniques To Avoid Errors

Bookkeeping is often considered a necessary but not-so-fun task for small business owners. The time-consuming and monotonous nature of bookkeeping can demand hours of work. That’s why more than half of small business owners don’t regularly update their finances each month. Bookkeeping, often overlooked, is actually your greatest asset for business management and growth. Accurate and consistent measurement of financials and key indicators is essential for effective business management and expansion.

With adequate knowledge, companies can effectively track and analyze all the information in their books, enabling informed operating, investing, and financing decisions. The good news is that common bookkeeping mistakes can be easily corrected once you catch them early on. We’ve compiled a list of bookkeeping errors and tips on how to avoid them.

Improper Or Poor Record-Keeping

It’s common for us to unquestioningly trust our memory and overlook important records. With numerous business matters to attend to, it’s easy to overlook small expenses that can gradually accumulate and harm your books. Creating a proper filing system ensures accurate record-keeping. It is advisable to have proper documentation in case of a potential audit. This will save both time and money on your income taxes.

Failing To Keep Relevant Receipts

People tend to throw away receipts for everyday purchases. While it’s fine for personal purchases, it’s crucial to keep receipts for business expenses. Your accountant can easily include all your expenses for that year in your taxes if you keep your receipts. Your bookkeeping responsibilities become simpler when you keep receipts. Make sure to use your receipts when categorising expenses, especially if you’re making a lot of purchases.

Improperly Categorising Expenses

Lack of formal bookkeeping knowledge, whether from you or your hired staff, can cause issues. To measure profitability correctly, it is important to track income and expenses accurately in the appropriate categories. Significant tax savings can be achieved by knowing the tax treatments of various income and expense categories.

Not Having Backups

Technology has made it possible to safely store most of our records and data nowadays. Accessing the information you need for your business is as easy as clicking a button. It’s crucial to stay prepared, as issues or errors can arise unexpectedly. To safeguard against potential losses, it is important to update and back up your files every two weeks.

Not Reconciling Regularly

The process of reconciliation involves carefully matching your bookkeeping records with the transactions on your bank statement. This process requires carefully reconciling your bank transactions with your books, ensuring there are no discrepancies. The objective is to maintain updated books, enabling a clear understanding of your financial situation. It is advisable to reconcile monthly as a general practice. The longer you wait to reconcile, the harder it becomes to maintain an accurate financial picture.

Combining Business And Personal Expenses

In the early stages of your business, you may rely on your personal bank account or card to make business purchases. There is a chance you could use business funds for personal purchases. This creates a messy bookkeeping situation as you will need to later sort through all of these transactions. Failure to keep track of business expenses could lead to missed tax write-offs. Opening a dedicated business bank account from the start will help you avoid this issue. Your books will be more organised and easier to maintain if you do it that way.

Not Communicating

Effective bookkeeping relies on communication to keep everyone on the same page and minimise errors, whether you hire a part-time bookkeeper or outsource the work. A common mistake is failing to report a bonus payment to the bookkeeper. Another instance involves purchasing supplies without informing the bookkeeper or presenting receipts.

Not Chasing Late Payments

Managing your accounts receivable can be tedious. It becomes overwhelming when you’re relying on the money to show up in your account, but it’s still not there. Ultimately, you are a business. When you offer a service or product, it is natural to expect to receive payment. Clearly communicate payment terms to avoid unexpected payment requests. Staying organised with your books will help you optimise invoicing and ensure timely payments.

Bad Petty Cash Management

Many business owners have a small amount of petty cash but lack knowledge on how to track it. Make sure to establish a system for tracking cash on hand and its purpose for the business. A great way to begin is by purchasing a petty cash lockbox from your local office depot and keeping receipts for all expenses.

Failing To Properly Classify Employees

With the abundance of independent contractors, consultants, and freelancers, it can be tough to identify who is part of the staff and who is not. However, don’t ignore this. Misclassifying workers as employees or contractors can lead to severe consequences, such as tax penalties and lawsuits.

Trying To Do It Yourself

The majority of small business owners have a strong dislike for managing their own books, but they continue to do it anyway. Competent and professional bookkeepers have the necessary skills to execute the task with speed and efficiency, and they possess the expertise to pinpoint subtle errors that may otherwise be overlooked. Being professionals, they will also be knowledgeable about tax changes that could impact your daily financial practices. It’s extremely beneficial to have a second set of eyes on your financial records in the long run, resulting in time and money savings.

Manu Accounting Services, your trusted partner for bookkeeping services in Sydney, Australia, is committed to excellence. We offer tailored financial solutions to meet your business’s needs. If you require assistance, feel free to contact us; we are here to help you!

FAQs

  • Should I hire a professional for bookkeeping, or can I handle it myself?
    • Even though individuals can manage their own bookkeeping, businesses generally prefer to hire professionals for accuracy, compliance, and to focus on core business tasks.
  • How can I prevent errors in my bookkeeping?
    • To avoid common bookkeeping errors, it’s important to implement proper systems, stay organised, reconcile accounts regularly, and seek professional assistance.
  • What are the benefits of hiring a professional bookkeeping service?
    • Accuracy, expertise, and timely financial reporting are the benefits of professional bookkeeping services. By doing this, businesses can concentrate on core activities and maintain financial stability.
  • Is outsourcing bookkeeping an affordable choice for small businesses?
    • Outsourcing bookkeeping is a cost-effective option for many small businesses. Businesses can avoid hiring and training in-house staff by paying for services based on their needs.
  • Are professional bookkeeping services exclusively for large businesses?
    • Professional bookkeeping services are available for businesses of any size. Small and medium-sized enterprises can improve their focus on core operations by outsourcing bookkeeping tasks.

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