3 Common Bookkeeping Mistakes to Avoid This Year
August 30, 2021
Many small business owners are reluctant to hire professional bookkeepers for organizing and tracking their financial documents, preferring to manage things on their own. However, following through with this decision isn’t quite as simple as it seems. By doing your own bookkeeping, you’re more likely to make mistakes and adopt less than ideal practices.
Here are a few bookkeeping mistakes you need to avoid this year.
Not Maintaining Backup Hard Copies
Gone are the days when you had to rely on hard copies to keep track of your records. Today, cloud technology has transformed bookkeeping practices and has made it much easier for businesses to maintain financial documents. Cloud hosting is especially useful for sharing important data and ensuring that it’s accessible.
That said, it’s not recommended to forgo hard copies for backup entirely. Even cloud has its fair share of risks and technical glitches that can result in loss of data. You may have trouble fetching relevant documents and financial statements stored in the cloud, or encounter cybersecurity threats.
This is why you should still maintain a hard backup of your documents. The IRS is particularly keen about seeing a visible paper trail that outlines documentation and organization of paper backups. Getting rid of all your receipts and records can be a cause of liability for your business, especially if you encounter technical errors along the way. While you can continue storing your records on the cloud or creating digital backups via apps, it’s best to keep your paperwork in store as well for at least seven years.
Being Nonchalant About Petty Cash
If your small business uses petty cash, you need to keep track of each and every purchase. You may think that you don’t need to keep your receipts from the time you picked up a couple of office supplies or spent a few dollars on a team lunch, but it’s these small expenses that can add up and amount to a hefty sum later on.
Many business owners disregard receipts like these without a second thought or don’t feel the need to have a dedicated custodian recording these expenses. This creates problems when they’re budgeting or assessing the cash flow since they don’t have records to justify their expenditure. It’s important that you establish clear policies for purchases made using petty cash and keep track of the receipts for documentation and deductions. This ensures accountability and prevents the likeliness of theft or fraud.
Another mistake small businesses make is the miscategorization of expenses and employees. While most of the categories used for documenting expenses are fairly straightforward, someone unfamiliar with bookkeeping can get them wrong. They may misclassify the people working for their business, create duplicate categories, or enter information in an incorrect category.
If you want to avoid any legal trouble, make sure you consult a bookkeeping professional to “clean up” your books and ensure that they’re accurate and properly updated.
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