Is Your Business Making These 4 Major Accounting Mistakes?

Business owners often feel rushed. There's never enough time to get things done; even the priority tasks are a struggle to complete. Sometimes, all that rushing results in mistakes. Here is a list of common accounting mistakes to avoid.

1. Failing to Maintain Accurate Records

If your business has an accounting package, be sure to enter all financial information into the software. If the software doesn't meet your needs, you may have the wrong program for your business. Even if you are keeping manual records, it’s still imperative that you maintain accuracy. Review the items below to ensure you are keeping proper records.

Enter all cash transactions 

If your cash register is not tied to your accounting software, you need to enter the cash transactions manually. This task should be performed daily, as it is easy to forget a cash transaction 30 days after it occurred. The sooner you enter your transactions, the more precise your records will be.

Enter payables  

Also, when a bill comes in, enter it into your accounting package on the same day. This is the best way to track how much money you need to cover upcoming expenses. When you pay the bill depends on the due date and your cashflow.  

Enter receivables  

If you invoice customers through your accounting software, the receivable should automatically appear. If your software doesn't generate invoices, you will need to enter the receivables manually. This information will help you forecast your cashflow.

Enter loan information 

If you receive a business loan, be sure to also enter that data into your accounting software. The loan is a liability that will impact your financial reports. Failure to enter information on your loan and its payment will create inaccurate financial statements.

Keeping your records up to date is the only way to know your financial position. Without that information, you aren't making decisions; you are guessing.

2. Failing to Ask for Help

No one expects a business owner to be an expert in finance or accounting. Yet, many owners fail to ask for help when it comes to financial matters. Not asking questions or getting help could have negative consequences for your business.

Sales Tax  

Make sure you are applying sales tax appropriately, especially if you do business online. Depending on your software, you may need to enter the sales tax separately. Since sales tax laws are becoming more complex, it is essential to get help if you are not 100% sure.  

Business Expense  

You and your business are not one and the same. At least not when it comes to paying taxes. Be sure to separate your business from your personal expenses. If you are unsure about these figures, ask a professional for assistance.  

Payroll 

If you think payroll is easy, think again. Doing payroll is not just about calculating gross wages and subtracting taxes. There are other deductions to consider including HSAs, 401(k)s, child support payments, back taxes, and the list goes on. And that's just the employee side of payroll. What about business-related expenses like worker's comp or quarterly tax payments? If you happen to miss a filing date, financial penalties may apply.  

There's nothing wrong with asking for help. Tax laws are complex, which is why you should talk to a professional when you have a question.

3. Failing to Monitor Finances

Keeping up on the financial condition of your company is one of your primary responsibilities as an owner. To do that, you must have accurate information, which requires reconciling accounts and learning to understand financial statements.

Reconciliation

Reconciliation means checking the information in your accounting system with the information received in your bank or other financial account statements. If the transactions match, the information is considered reconciled or in balance, and the financial data is accurate. 

You may not perform the monthly reconciliation, but you should at least review it every month. Look for any categories that seem over or under what you expected. If entries appear as journal entries, check with the person who created those entries. It could be an indication of fraud.

Financial Statements

Every month, you should review your company's three primary financial statements:

• Profit and loss statement (P&L)
• Balance sheet
• Cash flow statement

These items should be reviewed after your month-end reconciliation. Schedule time with a professional who can help explain how to use them.

4. Failing to Secure Data

Entering data into your accounting software doesn't mean you can throw away receipts, documentation or other financial records when you are done. You need to keep these items to use as supporting documentation in case of an audit or to verify data.

Store Records

Copies of financial information that support the accounting entries should be stored in a safe location for a minimum of seven years. Whether you maintain paper files or digitize them, make sure you can easily retrieve them in case of an audit. It is a good idea to file your documents regularly; otherwise, the task will become overwhelming.

You can learn more about storing your tax records here.

Backup Data

Backing up your accounting data should be performed daily. To be sure you have an accessible copy of your data, store your data in the cloud or at another offsite location. That way, a hardware or software failure won't erase your important accounting information.

Running a business can be rewarding, especially if you have knowledgeable resources to help. At Lutz, our mission is to ease your mind and invigorate your success. Feel free to contact us if you have questions or need accounting assistance.