Even the smallest accounting errors can result in significant profit losses and inaccuracies in quarterly and yearly reports. Mistakes can also increase the likelihood of a CRA payroll audit due to revenue discrepancies. It’s important to recognize the miscalculations and correct them as soon as they occur. If you are a business owner, consider these common accounting mistakes.
Small companies often feel they can tackle accounting tasks on their own to save money, but an inexperienced bookkeeper can make crucial mistakes, from not knowing the correct deduction amounts when writing cheques to classifying employees incorrectly for payroll purposes.
If you are unsure of payroll regulations, you might consider hiring out payroll processing to a third party or purchasing a software program like QuickBooks, which alerts you when you do not follow recommended procedures.
How to Choose the Right Accountant for Your Small Business
- Determine what your actual needs are: do you just need someone to handle the day-to-day bookkeeping? If so, you may not need a CPA. However, if you’re looking for someone who can prepare your tax returns and give you tax advice, you’ll want to upgrade.
- Start on a trial basis: most small businesses don’t need to hire accountants on staff. Instead, look for an outside accountant who can prepare your financial reports and provide advice on a quarterly basis, perhaps even managing your books online.
- Find an accountant who understands your industry: handling the books and taxes for a nonprofit requires different knowledge than taking care of accounting for a retail shop. A different set of knowledge is needed for, say, an auto mechanic business. If you look for an accountant who’s already familiar with your industry, you can feel secure in the advice you get.
- Ask colleagues for referrals: one of the best ways to find a great outside accountant is to ask people in your business who they use and recommend. You’ll get a sense as to how trusted and knowledgeable each accountant is when you hear that even your competitors are raving about them.
Falling Behind on Entries
Business owners are often overwhelmed with the number of tasks they need to perform in a single day just to keep a business running, so it’s easy to get behind on data entry in accounting if you’ve decided to take on the company’s accounting yourself.
If you let months go by without creating a single entry of expenses and income and fail to reconcile your bank accounts, it can be much harder to locate discrepancies. Designate a set time everyday or each week to enter everything into your accounting software or spreadsheet. Also, take the time to reconcile accounts when bank statements come, so you know exactly where you stand financially.
Misclassifying Income and Expenses
It’s easy to pick the wrong category for expenses and income, especially if you are in a hurry to get the job done. Misclassifying expenses makes it so your accounting reports can’t provide a clear picture of what’s going on with your company. Another common mistake is claiming expenses that aren’t deductible.
This also creates a huge headache during tax time when you start itemizing expenses because it could result in over-reporting of income. Double-check entries and make sure you understand the rules for classifications. Don’t be afraid to ask for help with a certified accountant.
Failing to Keep Receipts
When you throw away receipts, your expense statements are useless during an audit. Categorize receipts and place them in a folder for safekeeping. If you want to limit the paper trail, scan the receipts and store them in a file on your hard drive or in the cloud.
Skimping on Training
Even if you have the latest accounting software in place, it can’t be effective if you don’t know what it’s capable of. Sign up for comprehensive training classes and make sure all staff involved in the process goes through the same instruction. It also helps to hold periodic refreshers to avoid forgetting the proper procedures.
Save both time and money by understanding and avoiding some of the most common small business accounting errors. By addressing these errors quickly, you can avoid the pitfalls that inhibit business success and growth.