Common Accounting Mistakes to Avoid
Running a business can be a daunting task. Several tasks have to be accomplished to ensure that the records would be ready should any government agency come knocking to audit the enterprise. Keeping the records as straightforward as possible can be difficult as many things have to be accounted for.
Some entrepreneurs hire professionals to keep track of their business accounts. Accountants and auditors pore over receipts and other supporting documents and know the existing rules and regulations governing financial transactions to ensure that the business is above board. Business owners must work with reputable financial professionals like accountants in Central London to ensure they do things correctly. They can provide the necessary expertise suited for your business.
Here are some common accounting mistakes you must be wary of.
Although the advent of technology has greatly changed the landscape of record-keeping, digitising records doesn’t mean you wouldn’t have to keep track of the paper trail. Remember that auditing firms will pore over every document, and should they find an entry without any supporting documents, they’re liable to recommend a hefty fine. It goes beyond audits, as it can affect your company’s valuation should you choose to sell it. Before potential buyers sign on the dotted line to acquire your company, they’ll do due diligence and thoroughly look into your financial records. Therefore, a great records system is essential.
Skipping bank reconciliations
Another common accounting mistake is not reconciling the books at the month’s or quarter’s end. Checking the books entails using an external document, typically the bank statement, to ensure that each entry is properly documented and recorded. Errors in the reconciliation must be corrected immediately to ensure that the business is in good financial health and position.
No checks and balances
Small businesses typically have only one person manning the books, which can be quite efficient. However, there must also be checks and balances to ensure that there wouldn’t be any tomfoolery happening. Remember that in business, there must always be an oversight committee to ensure everything is being processed correctly. In addition, it helps to keep the business afloat and on good terms with the government.
Seeing profit across the board is good, but if your business overstates the profit margins, you might be doing yourself a disservice. It can cost your business in taxes, and you might think it is in good hands, but the opposite is true. A proper workflow would prevent revenue overstatement and help save your company in taxes.
Too much reliance on automation
Yes, technology has made work easier for accountants as software is available to help them reconcile the books faster. However, one cannot overstate the thoroughness of an individual who has grasped and applied the concept correctly. Software AI isn’t infallible and is also prone to errors.
Businesses can make accounting mistakes, and these can prove costly. However, businesses can prevent and avoid such mistakes if a proper workflow and a trusted system are in place.