Though bookkeeping and accounting have similar functions, these two positions have very different processes. Bookkeepers record day-to-day revenue and expenses in chronological order, and many use automated software to make the task easier. Due to this, full-charge bookkeepers, who fit above regular bookkeepers and below accountants in terms of skills and salary, also classify and summarize transactions for financial reporting. Accountants use accounting standards and requirements to analyze financial information, and then create business reports and financial statements.
In other words, bookkeepers keep up with recording, while accountants provide an accurate view of your Canadian small business’ performance and financial conditions so you can make better decisions going forward. Both remain vital parts of your company’s financials, but mistakes made during the bookkeeping process can carry over to accounting, which is why accurate record keeping is essential. Since small business owners typically perform their own bookkeeping duties, you should make an effort to avoid these common bookkeeping mistakes.
Not Taking Bookkeeping Seriously
Many small businesses fail due to the owner’s lack of financial literacy, which often means the owner doesn’t take bookkeeping duties seriously. To avoid this mistake, make an effort to learn the ins and outs of this process, and develop good bookkeeper habits of recording each and every transaction accurately and religiously, either as soon as it occurs or on the same day. If you feel you’re not up to the task, it might be best to hire someone to keep your company on the right track.
Failing to Keep All Relevant Receipts
Each transaction you enter into your bookkeeping ledger should have a corresponding receipt for fuss-free reconciliation and clear records at tax time. Most bookkeepers have easy access to the big stuff, such as rent, utility bills, supplier invoices, and sales receipts, but many forget to keep smaller receipts for things like business lunches, office supplies, and gas when traveling. Those small expenses add up over time, leaving you with a bigger tax liability when you can’t properly write them off at year’s end. A way to avoid this is to keep a accordion file handy, and then stow your receipts inside as soon as possible.
Neglecting to Create an Efficient System
While bookkeeping software takes a lot of the leg work out of financial recording, having a streamlined bookkeeping system in place to check and double-check your work reduces risks of nasty surprises in the long term. This means creating daily, weekly, and monthly checklists that ensure you complete all related tasks on time. Checklists include the basics of recording all financial data in a timely manner, reconciling expenses with revenue consistently, and recording enough detail about each transaction to make sense of it later. Also be sure to back up data each time you enter new transactions and keep several copies, whether on a CD, USB drive, or in the cloud.
Mixing Personal and Professional Spending
When you purchase items with personal credit or debit cards for your business or use your business accounts to pay for personal expenses, you muddy the waters when it comes to keeping your books. To achieve clear-cut bookkeeping, be sure to keep your accounts separate to ensure you can properly write off expenses at tax time. If you need to fund your business account with personal money, transfer the cash to your business account rather than making business purchases with personal cash or credit.
While bookkeeping software makes entering financial data relatively easy, a lack of time or education can lead to costly bookkeeping mistakes. Make sure you’re aware of areas with the potential to waylay your business, and take steps to double-check your records to avoid these common rookie situations.