How To Identify And Avoid Problems in Bookkeeping?

Bookkeeping involves keeping track of important information in different ways. Bookkeeping used to be a unique activity; the bookkeeper had to do more than one thing at a time. So, it is obvious to have some errors during this bookkeeping process. Here are some ways to identify the most common mistakes in bookkeeping.

• AP And AR Reports Don’t Match With Receivables Or The Spend:

Accounts payable(AP) and Accounts receivable(AR)  are essential parts of any business because they show how much money you owe and how much you have to come in. If you don’t write down and figure out these amounts correctly, your estimate or the amount you pay the vendor could be off. Reconciling your accounts receivable and accounts payable regularly will help keep things from getting out of hand in the future. 

• Suspense Account Or Creating Suspense: 

A suspense account is where all your suspicious entries go. These entries need to be looked at and put in the correct category. If you have kept accurate books, you won’t find this account in them.

• The books show a profit, but bank statements do not show it.

You need more cash or money in your bank account to match the profit shown in your profit and loss account. On paper, your business is doing well and making enough money, but you need to get by or make it to the point where you break even.

• Payables Invoices Also Show What Has Already Been Paid For:

On your payable report, you can see how much you owe to a vendor. You are sure that this amount has already been paid, but it is still on the books for some reason. No one wants to pay a vendor twice for the same product or service, and even if the vendor is nice enough to remind you that you’ve already paid, it’s not good for your reputation and can cause problems in the future.

• You Have Enough Money in Accounts For General Expenses:

General costs are indirect and don’t directly affect production or service. It could be rent, insurance, consulting fees, or office supplies. Having enough money in this account is not a good sign. 

Some Common Bookkeeping Errors That Bookkeepers Can Make:

Here are some common bookkeeping errors that bookkeepers can make. Even the best small business can’t avoid having to do the task. But there are mistakes we all make that can teach us something. With a bit of care and attention, you can avoid making these ten common mistakes and save time and money:

1. Trying To Do Everything On Your Own

There’s a reason why you pay an accountant. And it’s not just to add up money. Whether you just started a business or want to make it bigger, your accountant can help you figure out the best way to keep records and your books. If your books are organized and up to date, they will have time to talk with you and file your required tax return. 

2. Not Keeping Small-Dollar Receipts

Receipts for small amounts can help you prove your tax deduction in an organized folder or use accounting software to scan them. They also help you keep track of how much money you spend. 

3. Not Communicating Well

Maybe more than one person in the business does the books. Maybe admin support helps out a couple of days a week, but you make the big decisions. Even the simplest thing is to be misunderstood, so make sure you keep written, chronological notes of your conversations and make sure you both understand the processes you put in place. 

4. Not Comparing The Books To The Bank Statement Every Month

Making sure that the books match up with the bank statement at least once a month is the basis of good bookkeeping. The more often you do it, the sooner you’ll notice mistakes made by you or the bank, and the longer you’ll have to fix them. Electronic banking makes it easier, and now that it can work with online accounting software, it’s even more accessible. 

5. Not Using Your Software To Its Full Potential

If you buy software from a reputable company that has been in the market for a long time, the system will be made to match best practices and help you stay within the law. The best software is easy to use, but you should still read the manual or do some training online. It could save you hours and keep you from making mistakes that cost a lot of money. You should always try to get help from the company that makes your software. You might even find that they offer training to help you learn how to use your products. 

6. Not Back Up Files And Records

There will still be paperwork. However, this paperwork should be safe and well-organized. This paperwork can also be copied or scanned into software, backed up on disk, and in the cloud. If your computers break down, the cloud version will help you get back to work quickly. 

7. Not Keeping Track Of Sales Tax (Vat)

If you work in retail and have to add sales tax (VAT) to the price of goods or services, take it off when figuring out your total income. It’s a common mistake and can give the wrong idea of how well the business is doing. 

8. Putting Hands In Petty Cash

More cash is needed. It’s the company’s money. It’s necessary to buy a few things for the office, but try not to use them for more expensive items. They will add up, and it’s unlikely they can be adequately accounted for. If different people buy the same things over and over with petty cash, it might be better to get a better price. 

9. Keeping Your Personal And Business Accounts Together

Many people run successful businesses from their kitchen tables or garages, but you must separate your business and personal accounts. To save money on taxes, you’ll need to claim all of your legitimate business expenses to save money on taxes. But this only includes a few beers with friends after work. Mixing the two accounts can add to the confusion. 

 10. Putting Off Keeping Books

It’s human nature to put off boring tasks, and maintaining books is one of the most common. But the situation will get worse the longer you wait. Not only that, but your accounting will become more and more out of date, which means you won’t be able to track how well your business is doing. If something is wrong, you won’t know about it, possibly until it’s too late. Proactive accounting helps solve problems before they happen, but you can only do it if you stay on top of your books. Now that the software is easier to use and can be accessed on mobile phones and tablets through the cloud, keeping the books up to date has become much more manageable.

Conclusion:

Accounting and bookkeeping are extremely important in the business world and must be performed by an independent or certified expert. This is because a company’s financial records are often used by banks, creditors, and investors to determine whether or not they want to lend money. In this article, you can identify the errors differently and find solutions.  We love to hear your comments on this article.

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