Doing your accounting for your business or for other companies can be quite tricky. There are a lot of things to look into when managing your finances, especially because there are frequent changes in tax laws and the economy. You need to keep tabs on all the changes taking place in the industry when it comes to standards, such as IFRS 16 lease accounting, to make sure that all your practices and documentation are compliant, should someone ever look at them.
You’re not alone. Many people suffer from small and big accounting mistakes, which is why it’s important to know them to prevent it! So read on as I show you the five tips to avoid common accounting mistakes.
Five Tips to Avoid Common Accounting Mistakes
Everyone makes mistakes, yes, but ones made in accounting can be quite costly and you can’t reconcile it with a simple apology! So be aware of the five common errors done and what you can do to prevent them from happening:
- Always Update the Accounting Books
This is a pretty simple and straightforward tip. But you’ll be surprised with how many accountants forget or don’t bother to update it until last minute when it’s needed!
If you want to avoid various accounting mistakes, then updating the books every time a transaction is made will help loads. The way you update the books depend on what kind of accounting method you use (cash-basis or accrual).
Regardless of the method, updating it every time is an absolute necessity. Unrecorded transactions (or errors of omission) throw off the books and may result in incorrect tax files, wrong financial statements, and have you spend more than you should have.
- Save All Receipts and Required Documents
Normally, people would throw away all receipts or paid bills right after the transaction is done. But for businesses, it’s best to keep these bank statements and all other financial documents in a safe place. After all, these documents are proof for accounting book numbers, especially useful is the IRS audits you.
You’ll also be able to properly reconcile your books and go back to various transactions to see if what you recorded is accurate with the document. I recommend that you keep these records for at least three years, which protects your business in the long run. You can keep them in a locked cabinet or store them digitally as a backup.
- Always Check Your Records and Double Check Again
We all make mistakes, even accountants! And that’s not a huge deal, as long as you correct these mistakes before anything bad happens. One way to catch these mistakes before they become a huge one is through reconciling your accounts and double-checking everything.
Like mentioned above, reconciling accounts is through comparing your numbers in the book based on external records (like receipts or bank statements). This helps you identify any errors if any. And if you find errors, you can simply create a new journal and sigh in relief from avoiding the costly mistake.
- Separate Both Business and Personal Funds
Some small businesses share one bank account for business and personal funds. You need to avoid making this mistake by opening a new bank account purely for business. Even if you don’t need to separate your funds, it’s still a better idea to do so.
This is because combining both business and personal funds creates disorganizations and confusion. Furthermore, it can cause businesses to file their taxes incorrectly.
Through creating a separate bank account for your business, you’ll be more away of how much you have to prevent overspending. You also won’t be as tempted to use your business funds for personal transactions.
- Use An Accurate and Reputable Software
You might want to consider using a reputable software rather than to manage the books by hand. This takes up a ton of time and effort on your side, taking up hours and effort, or money if you hire your own accountant.
Instead of doing this, you can invest in an accounting software, which has you record transactions quickly. This has you track all funds and expenses, which helps you stay organized. You’ll be able to create reports, create and send invoices, and calculate costs better!
Wrapping It Up
When it comes to managing your business’ finances, it’s imperative to look into everything in your books and double check with everything. That way, you can look into any mistakes you may have made and won’t incur any unnecessary costs in the long run. Hiring people from TW Accounting or other reputable companies also help you loads!
Hopefully, this article on the five tips to avoid common accounting mistakes helped you out. So don’t wait any longer and look into any of these tips now.
If you have any questions or want to share your tips and experiences on accounting for the business, then comment below. Your thoughts are much appreciated.