Bookkeeping is a double-edged sword for business organizations. This is one of the basic foundations of the entire accounting and finance system. It doesn’t matter how experienced and qualified CPA you are, if you don’t have proper bookkeeping records, then you will be never able to anticipate the correct financial position of a company.
Most of the businesses don’t think bookkeeping services as a crucial part of their business management and that’s their one of the biggest mistake. Giving less importance to bookkeeping and not hiring a qualified person to handle bookkeeping records is the dawn of bad accounting practices. It has been noted that 60% of business organizations in the US don’t have dedicated resources to handle the bookkeeping, they fail drastically in business management.
Apart from ignorance, there are plenty of different bookkeeping mistakes that are committed by business firms. To make sure that the virtual bookkeeping process won’t cause a problem for your company, you need to always keep knots of following ten bookkeeping mistakes in your handkerchief.
Mistake #1. Mistake of Miscalculation
Bookkeeping is a very simple process where you need to enter the dual entry of every expense or income made by your company so that your company’s final balance sheet shows an equal amount on both sides. But, when your bookkeeping clerk forgets to add an entry or double the amount of entry, then the final balance sheet won’t ever agree.
One of the trickiest parts here is that you won’t be able to identify your mistake until you made the final statement. Even then it is very tough to find one error among thousands of entries.
So, to avoid miscalculation, it is advised to recheck your every entry twice and ask another person to evaluate your books as sometimes mistakes committed by yourself aren’t visible to your own eyes.
Mistake #2. Confusion with Accounts
Sometimes due to the similar amount or nature of the expenses, the bookkeeping clerk adds an entry under the wrong account head. This is a very common mistake but impacts dramatically your accounting process. For example, if the entry of your home rent is added to your office rent account, then it will imbalance your personal and professional expense account. That’s because if you have drawn rent money from your capital account, then it will be a drawing and should be mentioned under the drawing account.
This error can be easily avoided if you keep your personal and professional bookkeeping records separate and even hire different accountants to create your personal and official records.
Mistake #3. Using Obsolete Bookkeeping Software
Today, when traditional bookkeeping ledgers have been replaced with the virtual bookkeeping software, then it is very important for businesses to get the latest bookkeeping software. However, most businesses consider updating their bookkeeping software an unnecessary expense and keep on using the older version. And, which eventually results in low productivity and lots of errors.
It is evident that small companies can’t invest in the latest bookkeeping technologies, but they can indeed outsourced bookkeeping services and get benefits from the latest technologies.
Mistake #4. Not Appointing Experts
Bookkeeping is a mere recording process which can be done by anyone. This is the thinking of most companies and thus they hire inexperienced people at lower rates to handle bookkeeping work. At CapActix, we always condemn this ideology by saying that if you don’t have a solid foundation, then how will you build a strong building on it. It is the worst mistake that any company can commit.
Here, the solution is very simple either hire qualified bookkeeping in house staff or outsource your bookkeeping work to experts.
Mistake #5. Lack of Budget Plan
It has been recorded that 13% of companies fail due to a lack of budget planning and won’t have the knowledge to invest in good opportunities. To make the thriving budget, companies need to use past accounts and bookkeeping records as a source to correctly evaluate the deviation in the budget.
To plan a figurative budget of your company, you need to make sure that your business expenditure and revenue accounts are perfectly clean and flawless.
Mistake #6. Forget to Reconcile
Creating a bank reconciliation statement is one of the major parts of a bookkeeping process. Suppose, if you have issued a cheque of $2000 to your vendor and added the amount in your books under expenditure head, but your vendor hasn’t deposited cheque in the bank for the next two weeks. And, now if in-between this period you create a balance sheet for your company, then you are going to get a surplus of $2000.
The solution to avoid this problem would be fixing a date in the month when you have to reconcile your cash book and bank statement.
Mistake #7. Not Keeping on Your Credits
It is a self-destructive step for companies if they don’t keep a proper record of their credits. If you do not understand the interest value and fee, you might not get the enhanced credit score, even when you pay on time.
The easiest way to avoid this problem would be creating a clean and clutter-free credit statement and regularly monitor it.
Mistake #8. Not Creating Backup
The accounting process has been completely digitalized nowadays which has arisen an issue of data loss. Suppose, if your computer system in which you have stored all the company accounts got damaged due to viruses, theft, physical damage and much more, then you will lose all your data in a blink of an eye.
So, here, you have to create a proper backup of your data on another computer or the cloud storage.
Mistake #9. Bad Petty Cash Management
Business owners often operate with a small amount of petty cash, but they have little or no knowledge of how to track it. Businesses need to maintain a proper petty cash system so that they won’t have to go through all their accounts to find the balance of a couple of dollars.
When a company has a large financial department where thousands of dollars entries are handled on a daily basis, then it is advised to set up a petty cash account and accountant separate to avoid any confusion.
Mistake #10. Ignorant to Tax Terms
When business owners themselves try to handle bookkeeping working along with the other management work, then they are bound to miss out on important tax terms and return filing rules. Moreover, people don’t consider bookkeeping as part of the taxation process. Well, business owners, bookkeeping is pretty much part of the taxation process and if entries aren’t recorded as per the latest tax guidelines, then be ready for heavy punishments and penalties.
Again, to avoid committing this mistake, you need to hire an expert or outsourced bookkeeping company.
Here you can read about the Common Accounting Mistakes to avoid to grow your business substantially
Bookkeeping isn’t only about recording expenses and revenue entries. It is a much-complexed job than that and needs to perform with a high level of excellence. To create flawless bookkeeping records make sure to misjudge the importance of bookkeeping work.
If you want the support of bookkeeping services from professionals, then you can contact CapActix at email – [email protected] or can calling on +201-778-0509 without any hesitation.