Paper Trails

Bookkeeping Mistakes to Avoid

To ensure success for your business, establishing proper accounting practices is a must. Whether a small business of 5 employees or a growing company of over 1000 employees, the basic accounting principles for every business are the same. Avoiding mistakes in your accounting and bookkeeping system improves financial heath and enhances compliance. Continue reading for important bookkeeping mistakes to avoid.

Bookkeeping mistakes to avoid

Accounting, especially accounting for your business’ payroll, can be difficult. Many small business owners tend to take on the bookkeeping challenge themselves as they have limited access to the resources bigger companies have. However, even large businesses need to avoid mistakes in their accounting procedures to ensure long-term success. Important bookkeeping mistakes that every company should avoid include:

  • Not utilizing accounting software
  • Delaying making updates to the books
  • Ignoring the small transactions
  • Improper classification of employees
  • Forgetting to track reimbursable expenses

Lets take a closer look at each mistake.

Not utilizing accounting software

Using an automated accounting software, like Quickbooks or Peachtree, is the first step to making accurate accounting entries consistently. There are numerous benefits to using accounting software. First, the amount of time your staff will save is enormous. Making manual accounting entries is a waste of time, time that your staff can spend on value added tasks. Speaking of manual entries, automated software eliminates the human errors that occur with any manual based process. Accounting software allows you to setup custom general ledgers with sub-ledgers that work for your business. Lastly, your data security is much higher using an accounting software as opposed to having hard copies of receipts, paperwork and more laying around the office.

Delaying making updates to the books

While this may apply more to small businesses that do their own books, it is just as important for large businesses that have a full accounting team. Even though many business owners or managers are busy and have to prioritize certain tasks, bookkeeping is one of the tasks that should not be set aside. Keeping up-to-date books is key to knowing your business’ financial situation at any given time and having accurate books at year end. Consequently, not updating the books in a timely fashion can provide a false depiction of your business’ finances. To avoid transactions falling through the cracks and being missed, do not delaying making updates regularly. Accounting may be boring, but it is essential to running a business.

Ignoring the small transactions

When running a business, every transaction is an important transaction. Small purchases like office supplies and equipment can add up to a significant amount of the course of the year. Not recording each transaction can build up over time and lead to a misrepresentation of a business’ financial health. Additionally, record these transactions on the day they were made to ensure that they are not overlooked later on.

Improper classification of employees

Another critical area of accounting for payroll deals with payroll tax liabilities. Employers are responsible for matching and paying certain taxes on their employees. When it comes to recording taxes on your books, only the employer portion of payroll taxes need to be recorded. However, employers are not responsible for paying taxes on their 1099 workers. Misclassifying 1099 workers as W2 employees not only will cause overpayment on taxes, but inaccuracies in your books. Make sure to know the differences between the two and classify your employees correctly to keep accurate accounting of your payroll taxes.

Forgetting to track reimbursable expenses

Many small business owners pay for small purchases out of pocket. Larger businesses may have their employees buying certain supplies and requesting reimbursement for those expenses. Failure to track expense reimbursements properly can result in lost money as well as lost tax deductions. Just like with small purchases, all sizes expenses should be tracked on the day they occur to stay on top of them and minimize errors. Furthermore, create a company expense policy to ensure a proper paper trail in case of an audit.

While there are many mistakes that can lead to a messy set of accounting books, avoiding the above mistakes is a great foundation for any business. Use these tips to strengthen your business’ financial health and success.