5 Most Common Bookkeeping Mistakes: How to Spot and Avoid them
Mistakes are natural. It happens to everyone in any field. It also happens in bookkeeping. For starting businesses, bookkeeping mistakes usually occur because business owners have very little knowledge about what they’re doing. Others also make mistakes because of carelessness. Others get confused about how to classify transactions, and so they record it wrongly.
Mistakes happen all the time. But it does not mean that you can’t avoid them! This article presents the 5 most common bookkeeping mistakes and how to spot them.
Bookkeeping mistakes happen because of many different reasons. Here we will explore and see the common errors business owners or bookkeepers practice that leads to record mistakes. By knowing why mistakes happen, we know how to correct and avoid them.
Starting business owners tend to have very little knowledge of how to do bookkeeping. As a result, they guess their way through the process. This is a big problem. This will result in misrepresentation of accounting events.
If you are completely lost on how to do your accounting books, you can start by learning about the fundamentals. There are accounting books and video tutorials available online that you can use to learn about the basics. You can also ask a friend or consult an accountant for tips on how you should go about your record keeping.
2. Inappropriate Record Keeping
It is a very common scenario, especially in small businesses, when the bookkeeping function is left out to be the least priority. As such, you are probably paying little attention to where you keep your source documents.
Your source documents are the foundation for record-keeping. If you do your bookkeeping last minute, and you misplace your source documents, you probably won’t remember everything that happened in the last weeks or months. This will also cause problems later when filing for taxes.
You can correct this by creating a system on how you keep your documents. You can practice recording transactions daily or weekly to avoid the piling up of work to do. Make sure to securely store away source documents.
3. Wrong Classification of Accounts
If you are only starting a business, and you do the books on your own, you might be confused about how to classify the transactions into accounts. You might already be wrongly recording income and expenses. This is a problem because you need accurate records to measure your business’s profitability.
Bookkeeping usually takes time to master. You could start by looking into sample records online and observe how they classify certain transactions. You can use an industry-specific chart of accounts for your company. Further, you can read financial accounting books to know what each account classification entails.
4. Not Doing Bank Reconciliations
Bank reconciliation is the process of comparing and reconciling the difference between the company’s accounting records and the bank statement. Not doing timely bank reconciliation can result in too late discovery of errors and even fraud.
The most common effect of not reconciling is the failure to see piling outstanding checks. Outstanding checks are checks issued by the company but are not yet presented for payment by the payee. Not knowing that you have high outstanding checks may lead you to think that you have more free cash than you have.
5. No Record Back-ups
You need to back up your accounting data. This way, when your primary storage is compromised, your data is still safe. You need the record even from years before to make well-informed decisions. You cannot do this when your data is destroyed.
There are different ways to make sure your data is backed up and secure. You can use cloud accounting solutions that store your data in a remote location. This way, even when your local system crashes, you are sure that you can still use and access your data.
Running a business is hard. Doing it alone would make it more stressful. You don’t have to do it all alone! 3E Accounting offers professional bookkeeping services in the Philippines. We can help you with bookkeeping and accounting issues you’re facing. Contact us today and get in touch with our competent experts.