Return to site

Small Business Accounting Pitfalls Which Should Be Avoided

Accounting Services Help You Organize, Streamline Your Small Business Finances

For experienced accountants, accounting is a simple task. Accounting process should be managed in a proper manner from the beginning otherwise errors could go undetected and lead to loss of money. Accounting data is the true indicator of the financial status of the business. So a business owner must make sure that various accounting mistakes are avoided and the right data is created. Following are some of the mistakes which should be avoided by accounts:

  • Mistakes made while balancing your bank accounts- Software are used commonly by people while balancing accounts. There is a wrong conception that books balanced by using software will be correct. In case wrong information is offered then even using software will be of no use. For example if an amount of $500 is entered as $5000, then the account statements would display wrong information. So the account statements must be thoroughly checked in order to avoid mistakes.  
  • Sales should be recorded properly- While accounting the information related to sales, you must keep certain things in mind. For example, your company is acting as an agent for another company and earning commission for their sale. In such cases, your actual sale is the commission amount. If a company machinery or asset is sold then it should not be considered a sale.      
  • Be careful with foreign currencies- Accounting for foreign currencies requires precision. You will have to convert the foreign currency amount in to local currency manually or by using software. In case you record it in the foreign currency value, then your accounts could go wrong.
  • Fill information related to customers correctly- Sales invoices are offered to customers by most of the business enterprises. Generally one or two months are taken by customers to pay invoices. Attention should be paid to late payments. The reasons behind late payments could be poor financial position of the customer or the poor quality of the goods and services or wrong information in the invoice. Generally wrong invoices don’t get paid. So information related to invoices will be checked properly. 
  • Check purchase invoices thoroughly- All the purchase invoices must be checked properly. Information related to goods or services invoiced, prices, VAT or Sales Tax must be shown properly. Generally all this data is stored in computers. People have a perception that whatever is stored in computers is right. Computers store whatever is programmed in to them. So whatever information is stored in computers related to invoices must be checked thoroughly.
  • Inaccuracy related to suppliers accounts- Supplier accounts must be checked properly every month.  There is always a chance of a seller invoice being misplaced. In short supplier accounts must be kept properly otherwise you might end up paying for something you have not received or make an over payment.
  • Errors related to Stock- For businesses having stocks of trading goods, it is essential to keep a record of the accounts before the end of the accounting year. The record of the goods must be kept properly as wrongly counted goods will lead to wrong information in accounts. The obsolete goods should be treated as zero.
  • Miscalculation related to research and development expenditure- Research and development expenditure is shown on the balance sheet as an asset. The best thing to do would be to write off such expenses against the assets. This will also prove to be helpful in the taxation process.  
  • Cash related miscalculations- Cash management is an important function of any business. Losing or miscounting cash could prove to be disadvantageous for the business. So proper measures must be taken to safeguard the cash and record the cash transactions properly.  
  • Inaccuracies in entering transactions- Entering transactions twice are one of the common mistakes committed in accountancy. You will either end up overpaying or unduly troubling a customer. In case mistakes are realized later on, then they should be immediately corrected.
  • Mistakes related to closing your accounts- Accounts are managed for a particular period like a month or a year etc. So it should be made sure that all the transactions related to a particular period must be recorded properly. An effort should be made to look for missing items.
  • Miscalculations in spreadsheets- Spreadsheets are still used by many business enterprises who don’t want to spend money on software. While using spreadsheets common mistakes made are entering the information in to wrong columns. Such mistakes should be corrected as soon as they are noticed otherwise they could lead to preparation of wrong accounts.   
  • Not rechecking the accounts properly- After placing the transactions in the account, you must recheck the accounts once again. This will help in removing chances of any mistake being made. This step will ensure that all your hard work doesn’t go waste.   
  • Mistakes related to legal procedures- Accounts are maintained by companies for legal obligations. This process is followed throughout the world. In most of the developed countries commercial ventures have to maintain their accounts for proper calculation and payment of taxes to government. Companies which don’t maintain proper accounts are penalized by the government. While preparing accounts for legal requirements, owners tend to hide some of their revenues to lower the amount of taxes, which they will have to pay. If the same accounts are used for other purposes, then it could lead to mistakes. So accounts prepared for legal purposes must be kept separate.   
  • Lack of Consistency- The expenses should be analyzed in a consistent manner. They should be kept under the same heading every year. Different headings should not be used every year.  This would create difficulty in making comparisons between different years.

Cogneesol is a leading outsourcing company, offering outsourced accounting services to clients from all over the world. Over the past six years, it has emerged as a leader in providing accounting services for small business and accounting firms. We possess an extremely proficient team which is capable of completing all the client requirements with in the allocated time frame. For more information, visit www.cogneesol.com.

All Posts
×

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!

OKSubscriptions powered by Strikingly