Bookkeeping, or accounting, is one of the most important business activities that a business will ever have to go through. For some, this could be considered as the meat of their operations. It’s through proper bookkeeping and accounting that you can have an overall idea as to the performance of your business. You can study your profits, and study your growth. If there’s any negative aspect at all about your business such as losses, you can fix this early on, before it’s too late.
When it comes to running a business, it’s inevitable to commit mistakes. After all, every endeavor in life is always a learning process. While being aware of the common mistakes in bookkeeping, you can also avoid doing the same. That way, you don’t run afoul the risk of falling into any of these pitfalls. Here are the following bookkeeping mistakes:
1. Poor Record-Keeping Quality
Especially when your business is moving through numerous clients and at a very fast pace, it can be easy to overlook some transactions. When these transactions are skipped, they may stay unrecorded. Then, it’s going to be very difficult to trace these transactions and where the mistake was committed.
This fact is precisely the reason why it’s very important to practice good record-keeping practices. When it comes to tax filing purposes, it’s a no brainer that your business is going to encounter a lot of problems and difficulties along that line. For instance, during the tax audit season, when you’re asked to submit all of your transactions and books of accounts, this is where you may get yourself in trouble.
Poor record-keeping also has grave consequences for your business, such as the following:
- Credit issues, especially when your business has to submit documents and other business transactions to financial institutions
- Poor decision-making with your business, because of unreliable and wrongful records of transactions
- Lost sales and even possibly untracked theft
2. Failing To Reconcile Books Of Accounts
Another one of the common accounting mistakes that are committed by businesses has to do with the failure of reconciling the books of accounts of a business, with the bank statement. Sound accounting practices should make it easier for businesses to have this equal reconciliation. So, when there’s any discrepancy here, it means that an error was committed somewhere.
To avoid this from happening, it comes highly recommended for business owners, together with their accountants, to reconcile books of accounts and the bank statements monthly. That way, if it turns out to have some problem areas, you’ll only have to do a month’s worth of tracing, and no longer. Luckily, this process is now easier, thanks to the presence of numerous accounting software. So, you have no reason at all as to why you won’t be able to effectively comply with this need.
3. No System Of Backing Up Data
Another failure committed by businesses along this line has to do with the failure of backing up data. While this may seem like a very common sense thing to do, unfortunately, this isn’t always practiced by many businesses. There’s that common mistake to think that their current recording system is alright, such that they no longer need to record or back-up their data.
This mistake, however, can lead to serious consequences. If you lose the data and you haven’t done anything to back these up, then you lose them forever. Even your memory won’t be enough to remember every single transaction that was ever made in your business.
That said, here are some of the best ways for you to practice a back-up system for your data:
- Sign up for cloud accounting solutions
- Use external drives to store your back-ups
- Sign up for free options for apps and other online storage systems
4. Mixing Personal Finances With That Of The Business
This may be all-too-common advice, but it’s very important to emphasize the very fact that a business owner should never mix personal finances and accounts with that of the business bank statements. Especially when you’re running a sole proprietorship, it can be very easy to fall within this trap.
While it may seem like too much of an effort to hold multiple accounts, note that mixing your personal and business finances will only make your accountants even more confused. It’s very easy to lose track of how much your business is actually moving and earning when you’re mixing with personal funds.
That said, here are some of the best tips that you can apply, to avoid making this mistake:
- Whatever money you borrowed from your personal account to your business account and vice versa, take note of these, and treat it as a loan, so you can remember with ease to pay and reimburse this amount.
- Always strive to pay back any amount borrowed, in the soonest time possible.
Conclusion
With this list of common bookkeeping mistakes, you can now ensure that you don’t fall into the same trap of committing them. You learned an ability to avoid these mistakes and you can achieve more effective accounting practices that can lead your business towards a higher chance of success. For the next accounting season, make it a point to also discuss these issues, to know if you’re on the same page with your accounting team.