Five Common Bookkeeping Mistakes and How to Avoid Them
What Is Bookkeeping?
Bookkeeping is keeping track of where your money is coming from and where it is going. It is knowing what expense account you should assign each charge to and reconciling the books. Good bookkeeping is vital to all businesses. As a small business owner, you will need to consult your financial records while planning for the future, making significant decisions, and preparing your taxes.However, the books are only usable when they're well-maintained and accurate. Most companies work with a certified bookkeeper, but the duty might land with you if you own a bootstrapped business.It's perfectly fine to be your own personal bookkeeper when your business is getting off the ground. But you need to make sure to do the job correctly, so your books reflect your actual financial situation. Otherwise, you will base your business decisions on inaccurate information.
Five Common Bookkeeping Mistakes and Tips on How to Avoid Them
1. Combining business and personal expenses
When your business is just starting, you might find yourself using your personal bank account or card for business purchases. Or you might use business funds for personal purchases.
This makes for sloppy bookkeeping because you will have to sort out all of these transactions later on. You may also lose track of business expenses, which could cause you to miss out on valuable tax write-offs.
You can avoid this issue by opening a dedicated business bank account from the beginning. That way, your books will be much more organized and easier to maintain.
2. Not reconciling regularly
Reconciliation is the process of lining up your books with your bank statement. It consists of accounting for any differences between your bank transactions and your books.
The goal is to keep your books up-to-date, so you understand your financial situation. It's generally good practice to reconcile monthly. The longer you go between reconciliations, the more difficult it may be to maintain an accurate picture of your business's finances.
3. Throwing away receipts
Most of us get rid of receipts after buying everyday items. Doing so is acceptable for most personal purchases, but holding onto receipts from business expenses is essential.
If you keep your receipts, your accountant will easily be able to include all your expenses for that year when doing your taxes. Furthermore, if the IRS decides to question your return, you'll have all the necessary documentation to prove that your expense write-offs are accurate.
Keeping receipts makes your bookkeeping duties easier. If you're making a lot of purchases, you can use your receipts to make sure you categorize your expenses correctly.
4. Not categorizing expenses correctly
Many business owners who do their own bookkeeping often end up with incorrectly categorized expenses. This can occur through typing errors, a lack of understanding regarding expense types, or failing to categorize expenses at all.
Make sure to re-evaluate your expense categories regularly, update them if needed, and always double-check your work. If this responsibility becomes too overwhelming or confusing, it is a good idea to contact a professional bookkeeper or accountant for help.
5. Doing it yourself for too long
If you want to expand your business, you'll need to hand off the bookkeeping responsibilities sooner rather than later. As your company grows and increases in complexity, so does your bookkeeping. As the business owner, your time is usually best spent on the business itself, not in the back office. Hiring a certified bookkeeper will help you focus on growing your business, save time, and avoid costly errors.
Hire a Certified Bookkeeper
One way to relieve yourself from some bookkeeping work and issues is to outsource the task altogether. It's a smart investment to hire someone more specialized, who can dig into your books and give you proper advice and guidance. The bookkeeper you choose should be someone you trust to help you grow your business. At Accounting & Tax Group, we can help you make sure your bookkeeping is accurate and organized. We can set you up with an easy-to-manage system so you stay up to date, or we can do it for you.
Accounting Services We Offer
- Code all of your accounts correctly
- Assign transactions to the right expense or income account
- Create financial reports to see the big picture
- Set you up for success with your accounting
- Reconcile your transactions at the end of each month
- Keep your sensitive data protected
One of the easiest ways to do virtual bookkeeping is to use an accounting program like QuickBooks. It can do a lot of the heavy lifting for you.
What is QuickBooks?
QuickBooks is an accounting software that many businesses use daily. It allows you to input transactions, keep track of sales, and so much more. With QuickBooks bookkeeping, you can manage all the financial aspects of your business.
If you are interested in QuickBooks services, we can help you set up your account, train you on how to use it, and answer any questions you have.
Give us a call or set up an appointment, and our bookkeeping experts would be happy to help!
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