Mistakes during bookkeeping can lead you to a financial muddle and create great consequences that can send your business spiraling down. Statistics have shown that small businesses fall in the first five years due to the lack of proper bookkeeping process.
With a good grasp in knowing what not to do in the bookkeeping process, will help you to generate your income statement better. Here are some of the mistakes commonly done, so try to avoid these. If you’ve just realized that you’re doing some of them, be sure to change your ways in managing your business’s finance!
- Lack of knowledge – Even if you’re using the latest accounting software, without proper understanding of the general accounting principle, you will end up feeling more frustrated than before.
- Procrastinating – Do not put off entering the transactions to the very last minute as you will end up writing in a hurry without thoroughly reading and making sure everything is properly written, since all the work is piled up to the ceiling.
- Not having a separate bank account – Once your business is registered and has its own business name, create a bank account in its name immediately. Do not combine your personal financial expenses with the business-related transactions.
- Not paying any concern to petty cash – Despite the name, it’s not a trivial matter. At the end of the month, the slips of having the money-withdrawn should total up with the original amount.
- Using the wrong accounting method – There are two accounting methods, cash and accrual. Using the wrong method will leave you confused at the end of the month.
- No back up data – A paperless environment is the most-favored method nowadays, but when it comes to keeping track of your financial statements, paper is the best way to go. You are required to produce proper financial documents during auditing.
- Not reconciling accounts – This is an important process, as you need to make sure that the balance in the book is even with the balance shown by the bank.
- Not filing bank statements – If you skip this, you will need to call the bank to have the statement sent to you.
- No filing system for invoices – Unpaid and paid invoices should be labeled accordingly with the account names in chronological order to avoid mix-ups.
- Sales tax – Big yawn, eh? But remember, taxes are important. Failure to account them can lead to fines or penalties and incorrect data entered will lead to over-stated sales taxes due.