8 bookkeeping mistakes small businesses should avoid
Accurate bookkeeping requires consistency and experience, which a business and its team may not possess. Even with an in-house bookkeeper, certain mistakes still occur due to a simple lack of awareness about what is important and what isn’t for bookkeeping and tax filing. Accurate Tax & Bookkeeping Services discusses the common errors businesses make while preparing their books and how they can impact them.
Not recording small purchases
Every small purchase that a business makes can slowly add up to a significant amount that can get overlooked if not recorded. Saving receipts of purchases below $75 is also necessary to present during an audit, while some of these purchases can be used to claim tax deductions during tax filing. Businesses can use online and digital accounting programs or third-party apps to store a digital copy of the receipt.
Losing track of reimbursable expenses
Keeping track of reimbursable expenses is important to keep track of the business’s financial health, to enable tax deduction claims, and to have a clear paper trail available for auditors. It is important to keep track of these expenses and keep the record up to date.
Poor classification of employees
Misclassifying employees such as independent contractors, consultants, and freelancers is an invitation to an audit. An accountant must be consulted to correctly classify employees and avoid unpleasant surprises such as penalties and lawsuits during tax filing.
Poor communication with a bookkeeper
Sometimes business owners make decisions that impact finances and accounting but forget to communicate them to the bookkeeper. For instance, outsourcing work to a professional or buying supplies and not informing the bookkeeper about these decisions and associated costs will lead to errors in the books.
To keep a constant eye on the business’s financial health, it is important to reconcile the books with the bank statements consistently. This reconciliation helps business owners understand the cash flow and catch bank errors before they spiral into big mistakes. To ensure an accurate reconciliation, businesses can hire a bookkeeper to manage this complex task.
No paper backup
Digitization has made documentation easy, but it is important to keep a backup of the papers. Why? Firstly, it is important to have a paper backup in case of a technical glitch. Secondly, the taxing authorities may want to see the paper trail of all transactions. Businesses should ideally keep a backup of the financials for at least seven years.
Not collecting or deducting sales tax
Businesses, especially eCommerce businesses, often fail to deduct sales tax from the total sales. This leads to substantial tax burdens during tax time. Moreover, constant changes in laws regarding sales tax for online businesses in different states must be tracked by an experienced bookkeeper to ensure compliance.
Lack of petty cash policy
Creating a petty cash policy, designating a petty cash custodian, and keeping track of petty cash receipts are important for businesses to stay out of trouble. A custodian ensures accountability and mitigates the risk of theft or fraud. A receipt for documentation must accompany every purchase. After purchase, the receipts and remaining petty cash should equal the original dollar amount designated to the fund. Once the fund is over, a check can be written to cash to reset the original petty cash amount.
To ensure that a business’s books are accurate and up to date, business owners can contact professional bookkeeping services such as Accurate Tax & Bookkeeping Services.
Accurate Tax & Bookkeeping Services specializes in handling financial needs for businesses of all sizes.
Greg J. Menia founded the tax preparation service company in 2010, having worked in business tax services since 1995. The team performs tax services for small businesses and large businesses alike, serving all areas around Tampa, FL.
Call (813) 655-9702 today for “accountants near me” in Brandon, Florida. Alternatively, contact Greg and the team at Accurate Tax & Bookkeeping Services by emailing [email protected] or visiting the offices at 710 Oakfield Dr. Suite 159, Brandon, FL 33511.