Bookkeeping is a fundamental aspect of accounting that is easy to make mistakes, especially for small and medium businesses that cannot afford time and consistency. So how do you improve your bookkeeping process and reduce the chance of mistakes in bookkeeping? Simple, you know them beforehand.
As a leading remote accounting firm that specializes in providing outsourced bookkeeping services, we have encountered and also fixed all types of mistakes that could dent the accounting pillars of the business.
So with inputs from our bookkeeping experts at Outsourced Bookkeeping, we are going to discuss them all here in this blog today. But first, we will start with the root cause of the increased incidence of mistakes in bookkeeping and then delve into common bookkeeping mistakes encountered by enterprises. Read on to know:
Why bookkeeping is error-prone?
Bookkeeping can be tedious, especially when a business employs conventional and manual methods to keep a complete and accurate record of financial transactions. Lack of expertise, time and consistency and three aspects that can result in inaccurate and error-prone bookkeeping. Here’s how:
Time: Time is paramount when it comes to bookkeeping. A small and medium business where resources often juggle between tasks can have less time at hand to completely focus on the tedious nature of bookkeeping.
Lack of expertise and resources: This can be due to lack of capital or lack of access to the right booking resources and both can hamper the bookkeeping process which is fundamental to any accounting process.
Consistency: The nature of bookkeeping demands consistently clean books if a business aims for a smooth and accurate accounting process. Most businesses due to lack of time and resources suffer from poor consistency. If you are facing either of these issues then you may have a look at outsourced bookkeeping services that can provide smooth and consistent bookkeeping services.
Lack of time, consistency or expertise can result in an error-prone bookkeeping process. But what are the common booking mistakes? Read on to know:
6 Common Bookkeeping Mistakes Businesses Can Avoid:
1. Errors in the categorization of expenses: Believe it or not this is the most basic and common mistake we often see among start-ups. Given how crucial tracking and categorizing this income and expenses is when it comes to calculating profitability and discovering new tax-saving opportunities, bookkeepers must pay careful attention to categorization.
2. Blending business and personal expenses: Mixing business and personal expenses is the easiest way to further complicate the maze of bookkeeping. And this happens to be the most common mistake made by small and medium businesses which not only complicate bookkeeping but also create potential auditing problems in the future. So our bookkeeping experts at Outsourced Bookkeeping advise maintaining a dedicated bank account, credit card and cash at hand for all the purposes to avoid the hassle in the first place.
3. Not keeping track of receipts and petty cash: Receipts for small amounts are crucial when it comes to claiming expenses or tax deductions. It may seem like nit-picking but having them at hand is both a time and money saver when the time arises. So bookkeepers are advised to maintain a folder that can store these simple receipts. There are even tools and third-party integration that can further simplify the task by taking a snap and storing them digitally.
Similarly, the business also neglects petty cash that goes in and out of the business which in the long run can end up making a big hole in the pocket. Our bookkeepers at Outsourced Bookkeeping advise a dedicated custodian for managing this cash and purchases made through cash. Ensure receipts for these transactions and clear documentation for the same, to further simplify this process.
4. Not maintaining backups: While technology does help in automating repetitive tasks, an enterprise in rare cases may run into problems too. Data that is digitally stored may experience operation problems that result in data loss, especially due to system failure. When an enterprise doesn’t have back up then it can mean chaos for accounting teams and impending IRS problems. Sometimes simple measures can save us from a disaster and having the right cloud backup is one of them.
5. Neglecting sales tax deduction: Another most commonly found error in a retail business is not reporting or accounting of sales tax. This can result in the misleading measurement of business performance, fines and penalties. The problem for business is the lack of the right CPA at the helm to explain and educate about the responsibilities of sales tax which we will discuss in the next point below.
6. Not hiring expert bookkeepers or CPAs: Having an expert bookkeeper will make it easy but if you are serious about your business growth post-pandemic hiring the right CPA is paramount. An expert CPA can help you understand the sales tax obligation, collects and files sales tax for you (refer to the point above), discovers tax-saving opportunities, help you during an audit, provide strategic help in finance and accounting for business growth.
However, be it due to lack of capital or access many businesses do not fully benefit from an expert CPA and outsourcing can rectify this. As one of the best accounting firms in the business, Outsourced Bookkeeping has an excellent track record in providing dedicated bookkeeping services. Equipped with expert CPAs and Bookkeeping experts, Outsourced Bookkeeping can help you boost your business growth with our integrated bookkeeping and accounting services. You can contact us here: https://outsourcedbookeeping.com/