Accounting plays an essential role in both large and small businesses. Accounting can be laborious to any business and can bring your business to a halt if skipped. Keeping balanced books can prevent you from making costly accounting mistakes that can ruin your business.
Accounting books give you a clear indication of your business’s current financial status or you can get help from Accounting tutor. Well-organized and updated books are essential in forecasting the future of your business. Balanced books apprise you of potential financial gaps and enable you to make informed business decisions.
Accounting errors can have adverse effects on your business. This article gives you accounting tips to help you avoid common accounting mistakes.
Keep Your Accounting Books Up-to-Date
To avoid accounting mistakes, you need to record all transactions between your business and other parties in your accounting books. The times when you update your accounting books depend on the method of accounting you use. The methods of accounting are cash-basis, modified cash-basis, or accrual accounting.
When using cash-basis accounting, make a journal entry for money received or payments made. If using accrual accounting, record transactions as soon as they occur, with or without payments. If using the modified cash basis, record income as received and payments as made.
Whichever accounting method you operate with, you need to keep your accounting books updated. All unrecorded transactions account for errors of omission. These errors can complicate your accounting books, cause you to file inaccurate taxes, produce misleading financial statements and overspend the money you have.
Always record all transactions to avoid errors of omission.
Keep Receipts and Other Documents
Preserving receipts and relevant documents like bank statements accounts for the numbers in your books. The documents are crucial for an audit by the IRS and for reconciling your financial accounts. It is preferable to store documents in a cabinet and preserve them for a minimum of three years. Digital documents function as a backup for the paper documents.
Inspect Your Records
A regular inspection of your records will help you spot any mistakes. You can inspect your records through accounts reconciliation. Account reconciliation is the process of collating the numbers in your accounting books with other records, for instance, a bank statement. Any errors discovered should be corrected instantly to avoid complications in the future.
Spend no less than half an hour per week to check your finances and ensure that everything is running as anticipated. You should also conduct a monthly check on your account receivables to ensure that monthly payments from your debtors get into your account.
Always check your books at the beginning of the day when your mind is fresh.
Separate Personal from Business Accounts
You should have distinct accounts for your business and personal funds. Mixing of the two could lead to confusion and paying incorrect taxes. Operating a separate business account helps you to assess the financial status of your business. It also helps to reduce overspending and makes you focused on development plans.
Managing manual accounting books is tedious and time-consuming. Accounting software records your transactions faster and gives you a neat breakdown of outgoing and incoming funds. The software allows you to perform multiple functions at a time, create invoices, calculate balances and generate reports.
Creating a budget helps you to control your spending and make wise goal achievement plans. If your business generates lower than predicted revenue, develop creative ways of boosting it, such as advertising and offering discounts. If your expenses are higher than budgeted, strive to reduce them.
Get a Financial Advisor
You can include the fee for a financial advisor in your monthly budget. The financial advisor can help you with payroll and creating a pay stub for each of your employees. They can also assist you in correcting mistakes in your books and teach you proper account management. Several accountants are available to take such a role, so take a step and hire one to get financial help.
Prepare Financial Reports
After balancing your financial books, you need to summarize the records in each account to give you a picture of your business’s financial health. You can then use the results in making decisions about the future of your business. Financial reports include
Balance sheet. A balance sheet sums up your business’s liabilities, assets, and equity at one time. In a balance sheet, the sum of liabilities and equity should equal the total assets. A balance sheet shows your business’s health at a glance and indicates its potential to expand.
Profit and Loss Statement. It is alternatively known as the income statement. It outlines your business’s costs, revenues, and expenses over a given period, for instance, quarterly. A profit and loss statement is essential for making forecasts.
Cash flow statement. A cash flow statement omits non-cash items like depreciation. It shows where your business is earning from and where it’s spending the money. It also shows the viability of your business and its ability to cover its bills.
Bookkeeping enables you to manage your finances efficiently. Organized and balanced books save you from costly errors and alert you of your business’s potential.