If you are running a small business, a lot of things are beyond your control, including the consumer buying trends and the economy. However, you limit mistakes from ruining your company’s bottom line. Whether clerical errors cost your company money, result in an audit, or take up time, it can be devastating for you. To avoid accounting errors and the resulting headache, consider the tips below:
Keep Your Books Updated
Updating your accounting books can show all business transactions that have occurred. When to update the books depends on the accounting method you use. If you are using cash-basis accounting, it is a great idea to make a journal entry whenever you get money or pay something. But if you are using accrual accounting, ensure you record all transactions every time the business incurs them. This must be done even if you do not get money or make payments.
No matter the accounting method you use, a CPA in Southwest Florida can update your books. Unrecord transactions are called errors of omission. This practice can make you file taxes incorrectly, spend more money than what you have budgeted for, and make false financial statements. Updating your books can help you avoid errors of omission.
Save All Documents
Documents such as bank statements and receipts must be kept because they can serve as proof for figures in the books. Also, they are important when your company gets audited by the IRS. These documents are essential to reconcile your books. Try to keep records of at least 3 years to keep your business protected.
Check Your Records
Accounting mistakes can occur. But you can catch small errors when you reconcile your accounts. This means comparing the book numbers to an independent record like a bank statement. Once your accounts are reconciled, you may be able to discover errors in the accounting books. You can add or remove money by creating a journal entry.
Do Not Mix Personal and Business Funds
Combing business and personal funds can result in accounting confusion and cause you to file taxes incorrectly. By creating a separate account for your business, you will know the amount of money your business currently has, reducing overspending. Also, you can avoid being tempted to use business funds for personal purposes.
Creating budgets allows you to know whether you are spending more than you have to. You can plan for your expenses and make smart buying decisions. Also, you can protect your incoming revenue, which allows you to determine if you are reaching your business goals.