3 Common Accounting Mistakes to Avoid
There are all kinds of accounting mistakes to avoid, but without the help of a skilled CPA, it's a lot harder to steer clear of them.
Taxes come every year, whether you are ready for them or not. That's why you need a professional who can safely navigate your business through the ever-changing and muddy waters of tax law. Something that was deductible last year may not be this year. But the opposite also applies. There may be new tax deductions that you don't want to miss out on! The bottom line is you will need a CPA to guide you through this process.
These bills, while unavoidable, are often much more costly for your business than they need to be. If there are tedious accounting mistakes in your records, a CPA will often have to comb back through an entire year's worth of entries to make corrections. This means you are paying premium dollars for simple tasks.
Accounting Mistakes to Avoid to Help You Save Money on Your Accountant Bill
You can easily avoid this excessive bill by weeding these three common accounting mistakes to avoid out of your business practice.
INCORRECT SALES RECORD
Entering sales can be a tedious task. Depending on your industry, you can bill and track all of your sales right within your Quickbooks Online account, which definitely makes it easier. (Although not mistake-free, we will talk about that in the third point.)
Label every dollar
If, however, like many businesses, you have to use a separate point of sales service and sync your information to your online accounts, you need to make sure that you add those numbers correctly.
Each dollar needs to be properly labeled so that it isn't either over OR under-taxed. This means making sure categories such as tips, services, sales of products or goods, labor, taxes, etc., are all labeled. If you have your categories set up accurately in your sales software, you should be able to create matching journal entries within your accounting software that match both your bank deposits AND your sales reports.
Accuracy is key, and generality will end up costing you big.
(Read about these other accounting mistakes to avoid that could jeopardize your business next)
Another thing to keep your eyes on is making adjustments for merchant fees that you encounter.
For instance, you may make $50 of sales through Square but then are charged a $5 fee. You can not simply label $45 of sales on your books. You must appropriately label your entire $50 of income and then the $5 in fees that you encountered as an expense.
Care in labeling every dollar of your sales correctly does a few things for you when it comes to your CPA bill:
Ensuring your CPA they are working with the appropriate numbers
Keeping them from having to go back through and correct a year's worth of sales. (Remember: their time equals your money!)
Makes sure they are able to help you avoid huge penalties from the IRS for incorrect income reporting
Allowing them to get you the maximum deduction you deserve because your income to expenses will be easy to identify.
MISSING OR DUPLICATE ENTRIES
We've frequently written about the benefit of using some sort of expense-capturing app. This is where that comes in handy. It can be easier than you think to remember to enter one receipt and not enter another. And then to pay off your business credit card bill at the end of the month and re-enter a transaction.
In order to save you the daily headache AND to save your CPA from having to dig through months of bank statements and compare them to your digital records, create a system for yourself.
(Do you need to keep your receipts? Find out here)
Use something like ReceiptBank or Bill.com or a similar combo that suits your business needs. Whatever you choose, make sure it is something that relieves you of the burden of having to track papers.
You should be able to snap a picture of a receipt and quickly add it to your records on the spot. Likewise, make sure that all your invoices are emailed digitally to the same place. Make sure you have as few streams of info into your accounting software as possible. Try to choose one place for all invoices to funnel into, as well as one place for all of your expenses.
At the end of the month, if you are doing this easily in the moment, then reconciling to your credit card and bank statements should be a breeze.
Making this primarily a daily habit (receipts and invoices) and then a monthly one (reconciling) does not have to take hours and hours! Lean into the convenience of technology and find the solution that fits best with your daily movements and your industry.
ACCURATE CHART OF ACCOUNTS
This is like a road map to all of your business' activity.
It provides categories for where and how you spend your money:
Assets and liabilities
Your sales
Who owes you money
Basically, every transaction you make needs to be recorded, and the chart of accounts provides the code to what part of your business that transaction affects.
If you are a thriving small business, chances are you already have a working chart of accounts set up. But it's always helpful to review this to make sure it matches where your business is currently. It's not recommended to change your chart of accounts over and over. However, it is appropriate to adapt as you grow as a company.
As you evaluate, make sure you have accounts that will be easy for you to identify and easy for your accountant to track and understand.
While it's always helpful to be specific, don't get too caught up in the details. An overcomplicated chart of accounts will make it harder for you to correctly classify your transactions. Remember, you can always add memos to individual transactions where needed.
By keeping things detailed but clean and straightforward, you can ensure a better outcome in your monthly record keeping. This provides confidence for your accountant. It also helps them review your company finances in an expedient manner.
Remember, with most accounts, time is money! If they have to review and re-do faulty bookkeeping due to easy accounting mistakes to avoid, you are paying.
How to Get it Right
You surely have noticed the bottom line is accuracy. But more than that, it's building systems that make accurate record-keeping an easy part of your busy life. You went into business to change the marketplace, to offer something better, to make a mark.
You didn't go into business to spend hours on bookkeeping.
(Read about the bookkeeping questions every business owner must be able to answer next)
But that doesn't mean you should settle for inaccurate or partial records and then fork out a fortune to your accountant each year to have them corrected. Not to mention the time you will spend going back and forth to answer their questions.
With technology on your side, accurate records are just a matter of setting up the right system. Let technology work for you to save you time and money on your accountant bill come tax time.
Don't forget, beyond saving you time and money on your taxes, accurate books can provide you with invaluable information all year round.
If you're interested in having expert help setting up a streamlined back-office operation, along with intuitive insight into your monthly financials, you can book your free consultation now.
We value your time and want to help you put your time and energy back into your business and back into forging ahead in your marketplace.
Did you learn a lot from these accounting mistakes to avoid?
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This post was first published in 2017, but it was updated in 2022 just for you.
