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Friday, May 25, 2007

Top 10 Bookkeeping Mistakes By Small Business

I came across an article on allbusiness.com which seems to have merit. They compiled a list of top bookkeeping mistakes by small buisinesses. While I don't know what the basis was behind their research, most of the points in their list do make sense. Here is what they list:
  1. Not saving receipts of less than $75: The IRS doesn't require you to save all these receipts; but if it adds further support to all the deductions you take, why not just put them all in a folder.
  2. Doing it yourself: Wouldn't your business be better served if you were able to concentrate on the actual business instead of bookkeeping. A competent bookkeeper can probably do the job with much more efficiency and accuracy.
  3. Forgetting to track reimbursable expenses: So many small business owners pay for expenses out of their own pocket either by paying cash or using their credit card. Care should be taken to account for all of these so they get properly expensed by the corporation and ultimately reimbursed.
  4. Not properly classifying employees: You can run into trouble by not classifying employees properly. See my page on independent contractors.
  5. Lack of communication: Your bookkeeper can only be as good as the information provided to him/her.
  6. Not reconciling monthly: I wish I could tell you I reconcile my personal checkbook every month, but that just isn't reality. As far as your business goes, good accounting starts with a reconciled bank account.
  7. No backup: Even with todays technology, a paperless office is just not reality. For audit purposes, a paper trail should always exist. Most everybody has had experience with a computer failure. Virus software is not perfect. Keep a backup of all your data for when the inevitable hits and don't give up on paper just yet.
  8. Not deducting sales tax: Don't include sales tax in your income figures. Sales tax should be posted to a liability account for future remittance to the taxing authority.
  9. Petty cash nonchalance: Use a formal petty cash system with a set amount in petty cash. Use a petty cash slip or submit a receipt when funds are taken out.
  10. Miscategorization or overcategorization: Use proper bookkeeping to post transactions to the correct expense accounts. Establish a 'happy median' between having too many expense accounts in your chart of accounts (web page on charts of accounts coming soon) and having too few.
Visit my website for more information for the accountant or bookkeeper including career information and links to useful sites. http://accountinghelpdesk.com

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