Bookkeeping is not a necessity; it’s become mandatory to keep track of your cash flow management and proper tax return. You can’t be too casual about it because your company’s or business finance depends on it and will ensure that you are on the right track to move your company forward.
When you profit through sales and marketing, the only way to know how much profit you have gained is by bookkeeping. But common bookkeeping mistakes will follow once your company starts to conduct it regularly.
Canada Revenue Agency, aka CRA, will audit you sternly and no longer be lenient with you knowing that your bookkeeping method is just not right. The wrong way of executing it will put you at stake, like penalties and fines.
With the help of advanced and latest bookkeeping and accounting software, it has become easier than ever. But mistakes in bookkeeping have become even more evident, whether it’s human error or software downtime.
Some of these mistakes can be rectifiable, and some lead to repercussions. Had humans been more careful with their proper bookkeeping knowledge and resource, the entire process would have been a lot easier.
Let’s discuss the five most common bookkeeping mistakes and the way to prevent them once and forever for organizing the finances of your small business.
What Is Bookkeeping?
Bookkeeping is one of the quintessential record-keeping systems to measure your financial growth and health to predict your future business economy. It does so by keeping all your financial-related transactional data in one place, called a digital book (software), so one can easily access it to evaluate business transactions. That’s why bookkeeping’s importance is sheer.
Your financial records consist of a slew of receipts, invoices, sales, expenses and tax filing paperwork, which require months of hard work and dedication to put them sorted and organized.
Lack of organizing them time-to-time will result in the disorientation of those data, causing many bookkeeping errors. These documents should be centralized so that during the time of audits by CRA and tax filing, they can be made available and accessible.
5 Common Bookkeeping Mistakes to Avoid for Organized Finances
1. Not Having a System in Place
Many small businesses, due to their lack of proper bookkeeping services in place, hardly make their way to success. This system is mostly passe and esoteric in modern days. These companies leave their piles of months and months’ invoices and receipts with no proper recordkeeping.
Once they call professional bookkeeping services like us, we try to resolve their issues, but those long-kept transactions get difficult to manage and take a substantial amount of time and hard work, often leading to violation of proper submission for the tax filing deadline.
Therefore, you should –
- Allocate specific time for exercising bookkeeping, if not the entire day
- Never overexert a person’s capacity to enter all the data at once
- Never hire an unprofessional or unskilled professional to do it
- Stop palming off too much pressure on one person that needs 10 people to solve
2. Mixing Personal and Business Finances
Your chef has gone missing or taken a day off; the first thing you would do as a business owner is to arrange your employees’ meals if they are entitled to subsidized meals. You have spent money from your own pocket and later forget to put the entry of it.
This combination of personal and business finances often leads to confusion and, thus, accounting mistakes. You won’t either enter this amount into the company’s record or do it very late. This may not help you during the tax return as it will be considered part of your tax income, and you will be charged an excessive amount of whatever you spent.
Hence,
- Don’t mix up both accounts
- Put a sticker on the back of the card if both cards belong to the same bank
- Try to record each transaction or save it on your phone if you are out of reach of accounting tools
3. Not Reconciling Accounts Regularly
Many small business owners go bankrupt due to not being alert to merge their business accounts and personal accounts unintentionally. Firstly, both accounts are different, and secondly, you, mainly as a sole proprietor, cannot track your personal and official sales and expenses.
You may get money from your borrowers, who may have been your relatives, but that will be deemed personal income. If you don’t reconcile your own account with your banking account, you will develop a conjecture that you are earning money or profit, whereas that will be your personal income, not on your business’s behalf.
Therefore, by reconciling accounts, you can compare your bank account-related monthly released bank statement with your own personal accounting record so that you can monitor –
- If any error is found upfront in a bank statement
- Whether or not your money is a lot less than expected due to cyber fraudulency
- If the cheque paid by the customers is bounced that you thought it wouldn’t
- Any excess amount is subject to be paid during tax deduction
4. Forgetting to Back Up Data
Data backup is the disposal of losing important financial transactions. Since bookkeeping has become digitalized and most documents are kept and stored online, losing them anytime is inevitable.
But when you have your data backup system in place to stave off the data loss, which contains a lot of essential and core information about the company, you can flaunt yourself with a successful strategy.
To keep your small business finances intact and unharmed and prevent any susceptibility to data loss, you need to have a formidable backup system like cloud-based storage, such as SharePoint or OneDrive.
You can retrieve your lost data anytime from your desired backup system to your device again to keep your workflow up and running.
5. Not Seeking Professional Help
Not hiring a professional bookkeeper is one of the most common bookkeeping mistakes. Running a business is not a one-man show – you cannot manage everything. Besides, you need to be involved greatly with the operation and strategic planning of the company.
Hiring the wrong professional or an accountant who has theoretical knowledge of bookkeeping but does not, in reality, may cause unnecessary money burning and time loss. Therefore, admit your weakness as you are not bound to ace everything in your business and spare this complex work for a certified accountant.
By doing so –
- Your accountant can keep track of expenses and sales with proper categorization.
- A professional accountant can maneuver the accounting software better
- Remain up to date with financial regulations and financial compliance
- Classify the employee categories based on their salary, pay structure, term period, etc.
What’s Next?
When you get tired of constantly fretting about your common bookkeeping mistakes and their proper organization, Oshawa bookkeeping can be your life-long companion to save you from all the business-related financial banes and woes.
From creating quarterly and annual financial transactions to payroll management and executing perfect bookkeeping systems, all are inclusive of our service to help you get a peaceful night’s sleep. Your burden is our burden, and that’s how we are committed to taking care of your assets from falling into misconduct and any strict auditing.