Keeping financial records is one of the most important aspects of running a business. If you neglect regular bookkeeping, you might end up with inaccurate financial statements and possibly find it difficult to file your tax return on time or even be audited by the IRS. These bookkeeping mistakes can become costly if you let them go unchecked for too long. They are also common pitfalls that many businesses make when keeping track of their finances. Read on to learn more about these common mistakes and how to avoid them as much as possible: As a small business owner, you have many responsibilities and tasks that must get done regularly — things like tracking expenses and income, documenting pertinent details about transactions, reconciling bank accounts, and managing company assets. If not handled properly, these bookkeeping responsibilities can lead to under- or over-reporting of profits or assets on your business’s balance sheet; inaccurate accounting entries; improper IRS reporting; difficulty in meeting necessary tax filing deadlines; and potential fines from the tax agency for failure to adhere to record-keeping requirements.
Neglecting to Record Small Transactions
It’s easy to overlook recording small transactions such as charges you incur regularly, such as a business cellphone bill. However, these small charges can add up and become significant expenses if you don’t record them and track them properly. If these transactions aren’t registered, they could be overlooked when calculating the gross profit of a business. And if these charges are overlooked, they could be classified as operating expenses rather than as business expenses, which would be incorrect. This could result in the reporting of false or misleading numbers on financial statements.
Failing to Record Vendor Invoices
Vendor invoices are an essential factor to record for different reasons. One reason is that it allows you to track the purchases of inventory items or other goods that you purchased and need or use in your business. When these invoices are recorded in your accounting system, you have a record of what you have purchased, the cost of these goods, and when they are due to be paid. Not recording these invoices could result in you not being able to track the items purchased and their costs, which could cause a misstatement of inventory on financial statements. It could also result in you not having the necessary details to meet tax and other government reporting requirements.
Forgetting to Record Receipt of Goods
As part of your bookkeeping process, you should record the receipt of goods you purchase for inventory or for resale. Not recording goods receipts could result in inaccurate inventory records, which could be misstated on your financial statements and which could require you to restate financial statements. It could also result in not being able to provide details of goods purchased to potential customers who are requesting information about your products.
Forgetting to Record the Receipt of the Inventory
When goods are sold, inventory is restocked. The amount of inventory restocked can be recorded. Otherwise, inventory levels could be misstated on your financial statements. Not recording the receipt of inventory could also result in inaccuracies in your financial statements. It could also cause you to be unable to provide accurate details to customers if they request information about your products.
Filing Incorrect Tax Forms
If you fail to file the correct tax forms, such as the IRS Form 1099-Misc, at the end of the year, you could face fines. Not filing these forms when necessary could result in penalties for failing to meet tax filing requirements. It could also cause you to misreport income and fail to report any business partners, which would result in inaccurate financial statements.
Failing to Maintain an Accurate Calendar
A calendar can be helpful when it comes to bookkeeping, especially if you are someone who has a hard time remembering details about certain events or transactions. Keeping an accurate calendar and marking when certain events or transactions occurred — such as receiving a vendor invoice for goods or supplies purchased for your business — helps you keep details straight and remember what to enter into your accounting system. Not maintaining an accurate calendar could result in inaccuracies in your financial statements. It could also result in you missing tax deadlines, such as the due date for filing your income tax return.
Not Maintaining Accurate Asset Tracking
Assets are items in the business that have some monetary value, such as computers and furniture. Not recording the purchase of assets could result in inaccurate asset records, which could cause misstatement of assets on your financial statements. Not recording the sale of assets could cause you to underreport income, as well as cause inaccurate financial statements.
Not Having an Effective Job Tracking System or Process
Keeping track of the progress of jobs or projects that occur or are completed in the business could help you to avoid bookkeeping mistakes in the long run. Not having an effective job tracking system or process could cause you to misreport completion dates on certain projects or work-in-progress (WIP) in your accounting records. It could also cause inaccuracies in your financial statements.
Bookkeeping is an important aspect of running any business, regardless of the organization’s size or industry. It’s also a task that many business owners find challenging. There will always be a possibility that you could make a mistake when keeping track of your business’s finances. The best way to avoid these common bookkeeping mistakes is to stay organized and keep detailed records of important accounting events. And while these errors are common, they can be easily avoided if you stay on top of your accounting and have a system in place to track important events, such as receiving goods, paying bills, and completing projects.