Bookkeeping is a big part of many businesses. It is crucial and can shape the success or failure of the business. At Dean Roupas and Associates, we have encountered several common bookkeeping/accounting mistakes that most companies and businesses make. As these mistakes are common, one might think that they can get away with making them. But, these mistakes can have a detrimental impact on the financial well-being of your business.
Dean Roupas Palos IL is here to help you avoid these common mistakes. Obviously, the first step is to get awareness about these bookkeeping mistakes. In this article, I will explain them in detail, and I will also go on to explain how you can fix them. Getting in touch with a tax firm will help you notice some mistakes that might be happening in your business.
Treating Principal Loan Payments as an Expense
When you get a loan for your firm, depending on the loan type, you should record the original loan sum as a short- or long-term liability on the Balance Sheet. When making monthly payments to the lender, each payment should be divided into two parts: interest and principle.
Interest payments on a loan should only be recorded as a business expense on the Income Statement. Principal loan amount repayments should reduce the loan balance and be recorded on the Balance Sheet. Most businesses fail to do this. That is why working with a firm like Roupas and associates is highly advised.
Maintaining accurate accounting records for your company is not glamorous. Moreso, reconciling bank and credit card transactions and classifying data may not be your idea of fun. Nonetheless, it is vital to remember that proper bookkeeping is the cornerstone for running a successful and efficient firm. You will not be able to do the following without adequate accounting records: Recognize your company’s cash flow requirements, easily see if your company is on track to meet its profit targets, Plan ahead of time for tax season by making estimated tax payments depending on your anticipated earnings, and lastly, prior to tax season, employ tax reduction methods to ensure that you pay the least amount of taxes legally possible.
To solve this problem, consider bookkeeping to be equally as vital as sales when it comes to your business. Working with an accounting or tax firm like Roupas and Associates will help you understand how to put enough value into your bookkeeping. Bookkeeping firms will also do the bookkeeping for you. They will put the maximum value into this aspect of your business, and you will not have to worry about any bookkeeping mistakes. This will allow you to adequately focus on other aspects of your business.
Creating Accrual-Basis Reports rather than Cash-Basis Reports
Most organizations use the Cash-Basis method to present financial data. Revenue and expenses are documented as they are received and paid. The Accrual Method of Accounting, on the other hand, records revenue and expenses as they occur. With a click of a button, QuickBooks may change the financial reports from cash to accrual. If you disclose financial data incorrectly, you risk overstating or understating your entire tax liability, which may be a very expensive problem to fix.
To fix this mistake, make sure that all QuickBooks reports show the correct method, whether it’s Cash or Accrual. If QuickBooks automatically generates reports in Accrual mode, make sure to manually switch the reports to Cash mode before reporting the data to the IRS.
Failing to Outsource your Bookkeeping when you have to
When you initially establish a company, you may be tempted to do your own bookkeeping because, after all, how difficult can it be? With QuickBooks’ software automation, anyone can handle their books, according to the company. As we addressed in this article, the problem is that you are likely not an accountant. This means you may not have a complete understanding of the basic accounting rules required to keep your business’s books in order. This can lead to costly blunders. You may end up spending more for an accountant to correct your accounting problems than you would for someone to keep track of your books regularly.
To fix this mistake, be well aware of your limitations. If you are not an accountant, don’t try to be one. Consider engaging with an accountant that can provide advisory services beyond just maintaining your day to day business bookkeeping. You can learn about the benefits of working with a trusted financial advisor like DJ Roupas. That will make things easier for you, and it will improve the running of your business.
Failing To Have A Well-Organized Chart Of Accounts
Consider the Chart of Accounts to be the backbone of your business’s bookkeeping; without one, you risk wrongly categorizing transactions, which could lead to costly blunders.
To solve this error: Take the time to understand how you want to collect and organize transactions for your specific firm, rather than using QuickBooks’ default Chart of Accounts. If you’re not sure how to put up a Chart of Accounts, try hiring an accountant to help you with the process.
Primarily Relying on Bank Feeds
One of the most significant improvements in QuickBooks is the ease with which you can set up a bank feed to automatically integrate all bank transactions into your QuickBooks business accounts. Bank feeds are convenient, but they aren’t always reliable. There are occasions when we find duplications in imported transactions or when transactions are completely missing. This can create havoc on your finances and quickly escalate into a cascade of problems that misrepresent your financial records.
To avoid this mistake, always compare the information imported from QuickBooks to your business account balances. There is an inconsistency that must be identified if the two do not match.
If you recognize any of these mistakes, do not panic. You are not alone. Get in touch with Dean Roupas, and we can make sure that these mistakes become a thing of the past. We will ensure that you do not make the same mistakes, and we will be by your side to ensure that you make the best decisions for your business.