The importance of bookkeeping cannot be denied in the world of business. Even businesses that are just starting up recognize the value of setting up an efficient financial recording system as early as possible. The value of this is realized when the information compiled is organized in a meaningful way like a Profit & Loss statement which enables a business manager to make critical decisions regarding the future of the business. As such it is critical that even general data entry is executed in a meaningful and accurate way as the data entry can have a significant impact on reports which become available to owners and managers.
Bookkeeping, in and of itself, can be a tedious task. Bookkeeping requires close attention to details and accurate accounting of these details. One single missed or incorrectly allocated transaction can affect the integrity and value of an entire profit and loss sheet.
Let’s take a look at some of the most common bookkeeping errors that occur when bookkeeping for a business.
- Losing Control Over Time
When bookkeeping, it’s very important that you keep all the records updated. There can sometimes be piles of paperwork to attend to that you would like to ignore and leave for someone else to do. But one of the most common mistakes that can occur is simply not doing anything about the paperwork situation until it’s already late and you have received nasty letters from the Tax Office. It is important that you attend to bookkeeping properly from the beginning as you can avoid the stress of falling behind, save money from needing to catch up very quickly and have up to date financial information on the business.
- Not Having a Separate Business Bank Account
It’s very important to have a separate bank account when you choose to do business. This is important because it can be very easy to mistake business transactions for personal transactions and incorrectly account for a transaction or overlook accounting for a transaction. This alone can compromise the integrity of the profit and loss and perhaps cause you to pay more tax unnecessarily. An easy way to avoid this scenario is to open a bank account from the beginning in the business’s name which is purely for business transactions.
- Not Keeping Receipts for Purchases
In today’s world, we are increasingly moving towards becoming a paperless society. This coupled with individuals who are not disciplined enough to keep paperwork associated with a business transaction can be a large problem in the case of an audit. A lot of people simply don’t see the value in keeping receipts. Unfortunately, these same people fail to understand that, in the world of bookkeeping and accounting, a receipt is one of the most important source documents for efficient financial recording A financial transaction will not stand up in the case of an audit without proof of purchase or supporting documents. It is a crucial tool for transparency.
Another important point is the value of looking back over your receipts for purchases made over the last month can be a great eye-opener as to the amount of money that is being spent and what it is being spent on. This in itself can trigger the account holder to be more proactive in managing business expenditures effectively.
- Backup your Accounting Records
You only really comprehend the value of your up to date accounting records when you lose them due to an unforeseen circumstance. Taking the time to back up your records daily or weekly depending upon your volume of transactions can save you thousands of dollars which can be the cost of having to recreate the accounting records you lost. And then the likelihood of being able to recreate the accounting record accurately can be troublesome depending upon the records that you have. Even worse is if you depend upon your accounting records to actively manage your business this can be a nightmare. The most common solution to the backup dilemma is to back your record up to the cloud-like Dropbox (https://www.dropbox.com) or use an external hard drive.
- Incorrectly Accounting For GST
Accounting for GST incorrectly can be a very costly mistake that may cost you tens, hundreds or thousands of dollars depending upon the type of transactions that are being recorded. The best way to avoid making mistakes when recording GST is to have a copy of the invoice or receipt at hand. It is not ok to plead ignorance or use the if in doubt then I will claim GST rule as you may have to pay back any overclaimed GST with interest and a fine. A great resource for finding information regarding what items have GST and which do not can be located at http://www.ato.gov.au/Business/GST/.
Being efficient pays off and success is the reward for those who spare effort for these things.