Five Common Bookkeeping Mistakes

Are you in charge of the bookkeeping for your small business? It might seem like a tedious task, but staying on top of expenses is key when it comes to business management and growth. If you’re not an expert, mistakes can easily be made which can affect your business’s financials.

Here are five common bookkeeping mistakes and how to avoid them.

Combining Business and Personal Expenses

Make it a practice to separate your business and personal expenses. As a small business, you might find it easier to use one account, but this could lead to using business funds for personal purchases. You might also lose track of expenses that could be tax write-offs.

Having a shared account for business and personal expenses could become an issue if you are audited. If audited, you may need to provide complete records of business-related activities that are separate from your personal expenses. Save yourself the time and create a separate business account to keep your expenses organized and better maintained.

Not Reconciling Regularly

Reconciling your books with bank statements regularly is key to minimizing financial errors. The process helps you identify how much money you have on hand at any given time and consists of accounting for any differences between your bank transactions and your books. Reconciling regularly will help you catch any errors in your finances, such as not properly categorizing expenses.

Throwing Away Receipts

For many of us, throwing receipts away is common, but it’s important for your business to keep all receipts from expenses in case of an audit. If you don’t have all your receipts, you won’t be able to back up deductions you made on your tax return. Store your receipts in an organized manner, such as a digital file, and by category so they’re easy for you to sort through.

Not Categorizing Expenses Correctly

When you’re going through your financial records, set up categories that make sense with your business to track expenses. If your categories are not organized in a logical way, you can end up in situations where it isn’t clear which category an expense should go to. If an expense is categorized incorrectly, it could be flagged.

There are also categories that have to be tracked separately for tax purposes. It’s important to track income and expenses in the correct categories to ensure proper measurement of profitability.

Not Properly Classifying Employees

Businesses often have a combination of both employees and independent contractors. Make sure these are properly classified to avoid misfiling and overpayment of taxes.

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