Common Accounting Errors that Mislead

Common Accounting Errors that Mislead

Accounting errors are not always made by people trying to get tax benefits, pull the wool over stockholders’ eyes, or line their own pocketbooks. In some cases, accounting errors can be honest mistakes. These mistakes can lead to an under- or over-reporting of company profit. If you are unsure where your small business may be going wrong when it comes to accounting, be sure to check out these common accounting errors that can leave you scratching your head wondering where money has gone.

Recording Profits before a Project is Complete

A big mistake that businesses make is recording profits too early. Landing a big deal is exciting, which can make you want to record it right away. However, big contracts may take months to complete. Additionally, you may run into problems that cause you to spend more time or money on the project, which can result in an accounting error. To avoid this error, do not record profits until they are actually received.

Failing to Record Small Transactions

As with any area of life- the little things really do add up. This is especially true when it comes to accounting. While a $20 or even $100 miscellaneous transaction may not seem like a big deal when you bring in tens of thousands of dollars of revenue, failing to report and record the small business transactions you make can be detrimental to your company’s balance sheet.

Not Keeping Expense Receipts

Expense receipts are essential to providing hard copies of transactions, especially when it comes to using cash. As with the previous error, even the smallest cash transactions can set off the balance of your company balance sheet. To avoid this error, make it mandatory that all receipts are kept- whether they are for cash transactions, supplies, or even buying lunch for your employees. Keeping these receipts is essential to making sure you don’t forget about the transactions and your accounting department can mark them down.

Putting off Receivables

When you do a service for a customer before they pay, you end up with accounts receivables. However, more often than not, small businesses are guilty of failing to add the profits and mark off the receivables account when the debt has been paid. This is usually a result of being busy- these accounts always seem to be put off until the next day. Then, when they become lost in the mess of paperwork, they may not get reported at all. You can prevent this common accounting error by staying on top of your receivable game.

Forgetting about Your Fees

All of the small business transactions you make can really add up, especially if you forget to account for fees that you may be charged. Depending on the POS system that you use, you may have to pay fees every time that a customer swipes their card. Additionally, the company that you have a business card may be charging you a fee for certain transactions. In this case, the best thing you can do is re-evaluate the accounting books once you have seen your statement for the month. This will help ensure that you have not missed any of the small fees that may have sneaked in there. If after reviewing your monthly statement and you find that the POS system you’re using is charging an arm and leg per transaction, it might be in your best interest to find a new company. There are a lot of different POS systems out there, such as Fattmerchant, that offer a low transaction fee. However, certain ones may only work for your company. So be sure to research and find the appropriate one for your company’s needs.

If you do find some of these common accounting mistakes in your company books, then it is not too late to fix the errors. Once you have adjusted the books, you will have a much more accurate representation of your profits and losses for a certain period. This will benefit you in the future as you make plans for your business, decide where to invest your money, and more.

About the author: 

The writer of this article, Lautaro Martinez, is a small business owner and freelance writer who generously shares his tips ands experience in running an effective and smooth business. If you would like to learn more about Lautaro, feel free to checko out his Google+ profile.