Common Bookkeeping Pitfalls
Bookkeeping mistakes to eliminate to increase your profitability…and what to do instead.
Bookkeeping is an important part of running a successful business. Keeping detailed financial records is very important because that information is used by several sources including tax authorities and potential investors. Keeping your bookkeeping records free of errors can increase your profitability. Here are three common mistakes:
1) Avoid waiting to record your business transactions until a later date.
Recording your information as you go is a great way to prevent recording errors. If you wait until a later date, you could forget or overlook important information like tax write offs, customer invoices or payments, or information that is detrimental to your income or expense reports. There is a lot of information to record for a business and it can easily get mixed in and forgotten with less important information.
2) Avoid borrowing money for personal transactions from your business accounts or vice versa.
If the two types of transactions become intermingled, it can be very difficult to determine the actual successes and financial status of your business. When removing funds from your business account for personal use, make sure to record it as such (a loan, compensation, or other type of personal distribution). If transferring money from a personal account into a business account, record it as an equity transfer. This way you know for sure if it is a business or personal asset, expense, or revenue and it will be much faster to track later.
3) Avoid estimating or guessing in your records.
For each transaction you not only need the date, entity involved in the transaction, and the amount, but you should also include a short description and a classification of the transaction. For example, if meeting with a client over lunch you should record the date, the place you had lunch, the amount spent, and also the name of the client, a brief description of what was discussed, and a classification of the expense type. If recording a sale be sure to add who was involved in the sale, what was sold, and the type of sale (a service, a product, etc.) When driving, keep track of your exact mileage for business related outings; tax auditors can tell if you’re just guessing.
Refraining from these bad habits can save you a lot of headache in the future. Your time is money and correcting these mistakes down the road can take a big chunk of time away from revenue generating activities. At Dragon Financial, we are committed to saving you time, money, and your sanity by decreasing liabilities made by bookkeeping mistakes.
Here’s another resource to look over: Small Business Bookkeeping & Accounting: The Ultimate Guide