The 8 Most Common Small Business Accounting Mistakes

Keeping track of invoices to customers and from vendors and ensuring they’re entered immediately and properly into the accounting software can help reduce clerical errors. A monthly bank reconciliation can help to catch errors before the reporting period at the end of the quarter or fiscal year. A bank reconciliation is a comparison of a company’s internal financial records and transactions to the bank’s statement records for the company. Matching your accounts payable from your ledger to the money taken out of your accounts keeps you informed of your company’s cash flow. You will be able to detect many errors by reviewing your company’s trial balance. However, you will find that not all accounting errors affect the trial balance.

Even seasoned accountants and bookkeepers occasionally make mistakes, but they work in the finance industry, whereas you generally don’t. Is someone in charge of checking over invoices and vendor statements to ensure everything matches up? One of the biggest ways employees steal from employers is by making up phony https://www.bookstime.com/articles/bookkeeping-for-medium-sized-business invoices that appear legit, but only at surface level. All that it takes is a little digging to ensure all invoices add up to the real deal. Even if you don’t pay with cash you should still keep all receipts. Just because you use a card or check doesn’t mean you will have any record of what that charge was for.

Poorly Keeping Track Of Corporate Expenses

This sets you up for significant troubles during tax season and additional issues that may obstruct a developing organization. Let Wafeq manage your business finance and keep track of debits and credits, manage your inventory, payroll, and more. You should perform reconciliations on a monthly and yearly basis, depending on the type of reconciliation. Bank reconciliations can be done at month end while fixed asset reconciliations can be done at year end. When you standardize processes, you eliminate unnecessary issues, mistakes that could have been avoided and roadblocks that can affect business growth.

If there is no immediate resolution, an investigation into the error is conducted. An accounting error should not be confused with fraud, which is an intentional act to hide or alter entries for the benefit of the firm. Although there are numerous types of errors, accounting errors the most common accounting errors are either clerical mistakes or errors of accounting principle. The use of double-entry bookkeeping also lets you come up with accurate reports. This system requires you to input financial data in at least two separate accounts.

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The lack of experience in a cheaper hire will likely keep your company from optimizing its financials and slow down your potential growth. When looking into the future of your business, you have other issues to consider. When the IRS looks at a sample period of a few months and sees many personal expenses, they will extrapolate that whole period and put it under audit.

You can do this by comparing two sets of data (i.e., internal financial records vs financial statements from a third party) against each other to see if there are discrepancies. Reversing accounting entries means that an entry is credited instead of being debited, or vice versa. The issue is that you can’t spot this mistake in your trial balance—it will still be in balance regardless. For example, your company might have employees fill out their timesheets, which are then entered into a spreadsheet.