There’s a lot to bookkeeping and bookkeeping can be complicated, even for people who have studied bookkeeping in a bookkeeping class. That is why there are a number of common bookkeeping errors that all business owners need to be aware of. So read on if you’d like to learn more about these bookkeeping mistakes to avoid.
Common Bookkeeping Mistakes Business Owners Make
Running a small or medium sized business is hard work that requires a lot of dedication, energy and focus. A lot of business owners take on the responsibility of bookkeeping themselves in addition to their responsibilities of running the business, or they are hiring an inexperienced bookkeeper. This can lead to bookkeeping errors, many of which can be easily avoided with the help of professional bookkeeping services, like those offered by Go Figured Bookkeeping. Here’s are list of common bookkeeping mistakes to lookout for.
Mistake 1 – Not Correctly Classifying Employees or Contractors
Are the people who work for you employees or contractors, or do you have both employees and contractors working for you? The kind of work that employees and contractors do can be similar, but the difference between the two can be huge in terms of bookkeeping. This is because payroll tax can be different for employees and contractors, so classifying your workers correctly is important.
Mistake 2 – Not Correctly Categorising Transfers
A lot of small business owners make the bookkeeping mistake of categorising a transfer as income. The problem here is that the transfer is not a business-related transaction, so it doesn’t affect your profits or losses, as it is not income. This can happen if you transfer money from your PayPal account to your business bank account. It may seem like income because it is increasing money in your bank account, but it’s not. If the money entered your PayPal account due to a sale, it should have been recorded as income at that time.
Mistake 3 – Not Recording Bookkeeping Entries Properly
There are a lot of different kinds of bookkeeping entries that can be made. These include sales, amortisation, depreciation, and the list goes on and on. That is why not properly recording bookkeeping entries is one of the more common bookkeeping errors that people make. Bookkeeping can be complicated, even for a simple small business, and it is for this reason that it is often best to get professional help.
Mistake 4 – Not Saving Receipts
A lot of consumers don’t save receipts. This can carry over as a bad habit when someone starts their first business. But not saving receipts can have dire consequences for bookkeeping purposes. In the worst case, if the business is ever audited you will need to have receipts to prove the accuracy of your record keeping. But receipts are also useful if you ever discover a mistake in your bookkeeping, as the receipts act as a paper trail to track down where the bookkeeping mistake was made.
Mistake 5 – Not Recording Goods & Service Tax
We can easily say that every possible mistake on this list is a big one that should be avoided, but that is especially true about not recording GST. When a business doesn’t accurately record GST they are unable to correctly pay their taxes. This then becomes a legal problem and the ATO can come down hard on you and your business. Just be sure to correctly record GST.
Mistake 6 – Not Knowing How to Record Major Purchases as Assets
Businesses consume a lot of goods as part of their day-to-day operations. This means that businesses make a lot of purchases, some small and some big. But the way that major expenses are recorded in the books differs from small purchases. This is because major purchases depreciate in value over time, which requires special bookkeeping entries. When major purchases are recorded correctly, the depreciation expense from the major purchase can lead to reduced taxes, so recording it correctly is important.
Mistake 7 – Not Reconciling
The process of reconciling the books involves comparing the balances recorded in the bookkeeping records with bank account balances and statements from other accounts. Reconciling will allow you to identify any discrepancies which were caused by mistakes, allowing you to locate and fix any bookkeeping errors. It is even possible that this process of reconciling will allow you to find mistakes made by your bank. It’s unlikely, but it has happened.
Mistake 8 – Not Managing Petty Cash
Petty cash allows a business to easily make small purchases without using credit cards or other more complicated forms of payment. But funds put into a petty cash account and the purchases made from a petty cash account need to be accurately recorded. Not doing so is another one of the common mistakes we often see.
Mistake 9 – Not Backing Up Your Bookkeeping Records
We’ve seen all to often cases of business owners putting a lot of work into their bookkeeping using computer software, only to have their hard drive fail resulting in the loss of all of their bookkeeping data. The moral to be learned here is to always back up your bookkeeping records.
Mistake 10 – Not Staying on Top of Your Bookkeeping
Bookkeeping can be a lot of work, and as a business grows the bookkeeping becomes more difficult, complicated, and important. But a lot of business owners put off doing the books, which can easily lead to them falling behind in their bookkeeping. This is a common problem for small businesses as they grow, but one that can be easily avoided with the help of a professional bookkeeping service.
Contact Go Figured Bookkeeping for Your Bookkeeping Services
Many of the bookkeeping mistakes we mentioned in our list can be avoided by using a professional bookkeeping service. Go Figured Bookkeeping are trusted Brisbane bookkeepers that help small and medium sized businesses keep track of their bookkeeping. If you think that you are in need of professional bookkeeping services, get in touch with us and let’s discuss your unique situation. Call us on 07 3608 4206, email us at [email protected], or contact us using our online contact form.