Accounting is nothing but a cakewalk if you simply know how to do it. The objective is to have your accounting system up and running correctly from the start because systematic accounting errors can go unnoticed for months or even years. The most typical accounting errors include improper data input, numerical errors, incorrect recording of revenue and spending, and so on.
Without proper accounting, you will lack the knowledge required to drive your company toward lucrative growth. The absence of systematic accounting can also make filing your tax returns time-consuming and error-prone. Needless to say, it may subject your business to fraud and huge monetary losses.
But fret not, Diligen is here with a list of common accounting errors to back you up. Because knowing various types of accounting mistakes is the greatest approach to ensuring that your accounting is accurate and your business does not face the painful consequences of an overlooked accounting error.
Learn about some of the best accounting practices to use for an online business
1. Always Reconcile Your Accounts
Although technology has made our lives easier by replacing hours and hours of manual bookkeeping with software that handles the work, it may also occasionally pave way for an error, which can cause damage to your business. This is applicable in the case of manual bookkeeping as well.
You must actively reconcile your bank accounts to ensure that your books are accurately balanced. This confirms that the transactions in your bank account match those in your books. If you discover a gap, whether you use software, spreadsheets, or manual books, there is probably a mistake or a fraudulent transaction someplace that you need to find. Taking prompt action will help you avoid the effects later on.
2. Back Up Your Data
It’s a wise choice to use cloud-based accounting software to keep a track of your company’s finances. In unfortunate events of losing your precious accounting data due to unexpected circumstances such as system damage, technical flaws, theft or destruction of equipment, having a backup would be a lifesaver.
By using the cloud, you will be able to conveniently back your data up and retrieve your accounting data wherever and whenever you need it. By deploying a cloud-based accounting software, you will ensure that your accounting procedures are simplified, manual labour is reduced and the quality of work is improved.
Learn about some of the most-used accounting software in India
3. Record Every Minor Transaction
When documenting your transactions, bear in mind that every tiny transaction, such as spending for office stationery or a free sample provided to a loyal client, is equally vital.
Recording these little transactions and receiving receipts will be extremely beneficial when it comes to tax audits. In the unfortunate case that you do not save receipts for certain transactions, you will jeopardise tax deductions.
4. Keep Personal and Business Accounts Separate
Using the same bank account for personal and business operations is one of the most serious and common accounting mistakes that small and medium-sized business owners often make.
This not only complicates your business when separating these transactions, but it may also be financially disastrous in the event of bankruptcy. Furthermore, having a combined personal and corporate account implies that numerous deduction entries are missed. While maintaining a separate account does incur some additional costs, the benefits of having a separate business account greatly outweigh the costs.
Learn more about the benefits of having separate personal and business accounts
5. No Accounting Schedule
Accounting is frequently deprioritized and postponed in the case of small and medium-sized organisations. However, it is critical to recognise that procrastination in accounting may be detrimental to your business and finances and is a common accounting mistake across all domains.
Unaccounted-for transactions will result in a slew of accounting entries and other financial statements. This, in turn, will result in missed tax returns and payments. Transactions that have not been updated might hinder decision-making and corporate growth. As a result, it is critical to establish an accounting timetable for recording your most current income and expenses. For seamless operation, ensure that your books are clear well before deadlines.
6. Never Change a Closed Period
Once all of the data for the period has been recorded, bank and liability accounts have been reconciled, and the reports have been judged correct, an accounting period is termed closed. Any modifications to a closed accounting period need to restart the closing procedure.
If you modify information during a period for which a tax return has already been filed, you may be required to file an amended tax return. These errors in your books are simple to prevent but costly to correct and can force you to make business choices based on incorrect information.
Here are some more tips for accounting and bookkeeping
Whether you are running a small or large business, it’s important to bear small things in mind to ensure that your business runs smoothly. Accounting is the backbone of any business. To ensure that your business is profitable, your must make sure that your transactions are accurate and your expenses are backed by the necessary documentation. Learning from these common accounting mistakes and taking measures to prevent them will guarantee your business is always at the peak of success.
As important as accounting is, it can get tedious at some point for you to manage the endless entries, including every minor transaction. But with Diligen, your business is in safe hands. With our years of accounting knowledge and an ever-growing team of experienced accounting professionals, we can help you stay updated with your day-to-day bookkeeping requirements. So, what are you waiting for? Schedule a call with Diligen. Let’s get talking.