As an entrepreneur, it is a must for you to keep excellent bookkeeping records. This is because a lot of researches have proved that business with inadequate accounting documents and account books are more likely to fail. Such company also possess lesser opportunities for survival when they are compared to companies that maintain excellent accounting documents. Thus, there are some errors or poor practices in bookkeeping that you ought to stay away from to maintain the records that can help you to devise strategies to manage the working capital.
Not Ensuring That Your Books Are Always Up to Date
People always treat bookkeeping as a hectic task after they have become worn out and exhausted from the events of the day. However, putting in the effort and time to methodically keep and update your books are going to save you a lot of time. This is especially true when managing your receivables (Also see How Does Accounts Payable and Accounts Receivable Differ?).
Not Reconciling Your Bank Statements to Your Accounting Ledgers
Balancing and matching your bank statements to your accounting ledgers ensures that all the deals which show up in your bank have been documented in your books of accounts. It is something that your tax accountant and tax auditor will prioritise. The following will happen if you don’t complete the reconciliation between your bank statements and your accounts regularly.
– You will have to pay more since your tax accountant needs to carry out extra work.
– The amount of tax you have to pay will be higher than the real tax liability since you are unable to claim your tax-deductible expenditures as a result of not having sufficient evidence and accounting records.
– During a tax audit, the chances of you being penalised will be higher as the tax auditor will hardly believe that you have kept your accounting documents properly.
Thus, it is vital to balance as well as reconcile your bank statement with your cash and bank ledger monthly or even more frequently.
Not Documenting Payments and Receipts In Cash
Most entrepreneurs and especially those who run a small business, do not differentiate personal and business expenditures. Most of the time, they would spend their own money on business expenditures or use funds of their company for private spending. If they do not keep a record of every such cost individually, they may have to spend a few thousand dollars in lost tax deductions and tax credits. It is better if they have a particular drawer or envelope in somewhere safe for their petty cash to make sure that all the sales receipts in cash may be kept in that. At the same time, they should record all the deals in their books too. Besides, all business owners should have a receipt for all purchases before they pay for it.
Not Recording Precise Information Regarding Transactions
Usually, many entrepreneurs will bring copies of receipts or bank statements in their raw form when they meet their tax accountants (Also see Situations Where Having the Right Accountant Can be Handy) to prepare and file in their annual tax returns. As a result, their tax accountant needs to put in a great deal of time to look into the details of every transaction. To avoid this from happening, entrepreneurs should place a summary or description against each deal when everything is still new and current so that the accountant can understand it. This practice will not only save your tax accountant a lot of time, but you will also have a peace of mind at the end of the year especially when your hard work that makes the financial statements pass the audit procedures easily.
If you wish to stay clear of such poor practices and costly errors, we encourage you to employ an outstanding accounting firm in JB to keep an eye on your financial accounts.