Everyone makes mistakes, but errors in accounting can lead to huge problems for your business. Try not to make the mistakes below so your organization can continue thriving.
Inadequate Record Keeping
Technology has changed a lot of things, but recordkeeping is just as critical as ever. The only difference is you need to manage digital records now, not just paper ones.
As you’ll learn in classes when you study for your CPA designation, you will need to have accurate records if you’re ever the subject of a tax audit. The state tax agency or IRS may tell you to offer receipts and related documents to prove that a business expense is legitimate.
But did you know that accurate recordkeeping is not merely for tax purposes? Consider if you want to sell your company. Any legitimate buyer will want to see your tax records and may even pay for an external audit of your firm’s financials.
Also, keeping accurate records prevents employee fraud. Many major embezzlement cases involve employees who were trusted and unsupervised regarding company funds and expenses. With correct records, you can keep the possibility of misconduct to a minimum in your company.
Failing To Follow Accounting Procedures
Every company, however big or small, must have detailed and documented accounting procedures. A helpful step is to create forms and checklists to ensure consistency and accuracy in your business affairs.
For example, you should have a documented procedure to establish a relationship with a new vendor. Information that is needed in the procedure includes EIN, address, name, and other essentials.
Almost anyone can make data entry errors, and accountants aren’t an exception. Some of the most frequent data entry mistakes in this field include:
- Putting accounting items in the incorrect account
- Transposition of numbers
- Adding or leaving out a decimal place or digit
- Duplicating or omitting an accounting entry
- Treating income as expenses or vice versa
You can avoid data entry errors by having someone review all of your work for the day. And don’t enter data for hours without taking breaks, or you’ll make more mistakes.
Errors Of Omission
These are mistakes where you forget to enter or record an accounting item.
Errors of omission aren’t intentional; for instance, a customer may have paid an invoice, but you forgot to note that you received it. Or, you bought a new PC and didn’t enter the transaction in the accounting system.
These mistakes often happen if you aren’t good at tracking documentation, so make sure you keep all of your receipts and invoices organized.
Lack Of Checks And Balances
In many small businesses, one person may handle all of the financial and accounting duties. After all, you want to keep your business lean, so you have fewer people do more work. But this can lead to a fiasco in accounting.
There are many examples where one person was trusted to handle a company’s accounting that led to millions in embezzled funds.
At the least, the employee who handles your bookkeeping shouldn’t be the one who makes bank deposits. Also, avoid giving any employee the authority to sign on your business accounts. And be sure that you check your company’s bank statements every month.
Thinking About The Short Term
It’s easy to get wrapped up in the daily matters of running a company, so you may not be thinking about the future.
But accounting and bookkeeping aren’t just tracking today’s financials; they also help you estimate potential growth in your organization and analyze potential financial risk from current results or decisions.
Hopefully, reading about common accounting mistakes will help you to improve the accounting in your organization.