12 Common Bookkeeping Mistakes to Avoid
1. Commingling funds – So many business owners are guilty of either using the business account to pay for personal expenses or paying business expenses through the personal account. This is a big NO NO!
2. Misclassifying workers – Times are tough and staffs are getting smaller and smaller. Many business owners are classifying workers as independent contractors when they really are employees. This mistake can shut your business down.
3. Not reconciling books to bank statements each month – This is a practice that should be done each month. It ensures that all charges on your bank statement are legitimate and it also ensures that all charges on your bank statements are recorded in your books.
4. No backup – A paper trial of documentation should exist for all computer records. Technology is a wonderful thing when it works. Telling an IRS audit that your computer records were stolen or lost in a fire will not be sufficient.
5. Miscategorization or over categorization – This occurs when expenses are either recorded in the wrong category or there are too many categories created.
6. Improper use of petty cash – A system must be put in place where a set amount of money is placed in the petty cash fund and accurate records of expenses and replishments are recorded.
7. Missing deadlines – Filing returns late can create unwanted penalties and interest.
8. Excluding startup expenses – Failing to keep accurate records of the expense incurred prior to opening the business doors. These expenses are often time paid from the personal account and are often times overlooked.
9. Including equipment purchases with supplies – Equipment is a capital expenditure, and capital expenditures have to be depreciated, which means they get written off over several years.
10. Improper auto expenses – There are many options for calculating deductions when you use your car for business. (Actual expenses OR mileage)
11. Claiming too much for gifts – You may claim gifts given to your client but keep in mind that you can only deduct $25/per client/per year. So if you give a $50 gift you can only deduct $25/per client per year.
12. Writing checks out of sequence – Writing checks out of sequence opens your business up to theft from employees or vendors.
Have you heard a tip that you didn’t know about? Which one? What are you going to do to clean up your books? We’d love to hear from you.