If a business owner has ever made a mistake on their small business financial statements, they know how expensive and time-consuming accounting errors may be. Those mistakes also illustrate how important it is to protect the business and books from the most common accounting errors.
Get to know some of the most common accounting errors that are made by business owners today here. By knowing what the errors are, they can be avoided in the future.
1. Errors of Omission
One of the best ways to avoid common accounting errors is to use professional services such as SOX Compliance Services. While this is true, it’s also essential for business owners to get to know what their common errors are.
Regardless of whether a business owner buys inventory or collects customer payments, the business is constantly handling transactions. The outflow and inflow of cash may cause some business activities to slip through the cracks. If transactions aren’t recorded, it’s referred to as errors of omission.
Any unrecorded general business expenses can cause serious problems with the books. Inaccurate financial records can also create problems in measuring overall business productivity and filing taxes. To avoid those issues, ensure each transaction is recorded even if the transaction seems insignificant.
2. Treating Cash Flow and Net Profits Equally
Cash flow and net profits both deal with expenses and income. But, there’s a huge difference in how cash flow and net profit measure money.
The net profit looks at if a business has made money after all expenses are paid. Cash flow measures how fast the business moves money. This is a prevalent accounting error small businesses make but can be avoided easily.
3. Failing to Reconcile the Books
Small business owners must reconcile their books with their bank account frequently. By doing this, they can check for accuracy and mistakes. Be sure the balances of accounting records and bank statements match.
If a business owner does not reconcile, accounting errors will go unnoticed for a while. This makes them even more difficult to find.
4. Not Using a Budget
For most small businesses, limited funds are just a way of life. To keep from overspending, it’s important to have a strategy. With a business budget, it’s possible to plan for expenses and income.
The budget also helps the business remain on track with money. It also helps to take all the guesswork out of financial planning. It’s a good idea to use the business’s past accounting records to help project future income and expenses.
Once a budget is in place, be sure to follow it. Not following a budget is just as bad as not having one in place.
5. Excessive Time Spent on Accounting
Some small business owners feel like they have to handle everything on their own. However, this isn’t the case. Managing the books for a business is a time-consuming process, and it’s something that doesn’t make money.
Take the time to find a way to reduce the time spent on this task. It could be by using software or hiring the pros as both are viable options.
Avoid Common Accounting Errors
If a business owner wants to avoid the most common accounting errors, they have to know what the errors are. Some of the most common mistakes are found here and puts business owners one step closer to avoid making them.