No matter the size of your start-up/ business or even its age, one activity that you should never put off for a later date is accounting for your incomes and expenses. This is important not only for the legal or taxation point of view, but also for the fact that you as a business owner need to be aware of the overall health of your business on a real-time basis. And this is possible only when your business accounting is on track. Let’s read about a few instance of accounting mistakes that businesses commonly make and how you could avoid them:
• Irregular Updates: Because of the frustrating nature of keeping accounts, many businesses/ start-ups do not update their accounts on a regular basis. They often put it off for weeks. This results in forgetting transactions and missing them completely from the accounts books.
Way Out: Make it an everyday practise to jot down your financial transactions at least in an excel sheet. In case you still do not have a computer to work with, make every day entries in a book. Remember to post the transactions against the actual date they took place. On the day when you sit to do the consolidation, you will be happy to find that nothing was missed and the process was faster without any unnecessary stress.
• Misclassifying Expenses: Even with good accounting software, it is common to make classification mistakes while accounting. For eg, interest on deposit may be clubbed in revenue or bad-debts may be treated as an expense instead of a reduction from the debtors account. In such cases, your Profit & Loss A/C will not state the correct amount and in all likelihood, your Balance Sheet will not tally.
Way Out: Periodically check your income and expense head to see all entries are right. Similarly check the asset and liabilities to ensure that depreciations, write-offs are accurately recorded.
• Non-Adherence to Accounting Principles: Accounting for your business should strictly follow the basic accounting principles of consistency, materiality, matching, revenue-recognition, going-concern etc. Non-adherence to these can amount to charges of falsification and misrepresentation. Way Out: The accounting principles and guideline are easy to understand and follow. Make sure you read about them in details and apply them in every instance of recording your transactions. Click on to this link for a quick glimpse – Accounting principles made easy
• Insufficient Accounting Software: Many start-ups/new businesses do not have the capital outlay required for buying accounting software and end up maintaining their accounting records in a haphazard manner.
Way Out: Remember, no matter how small you are, keeping your accounting records in a true and fair manner will help you gain confidence of banks/business partners who might be keen to invest in your business. Scout the market for software that best suits the line of business you are in. Quick Books Online, is one such software that is easy to learn and quick to operate.