Here’s how to avoid the most common accounting errors.
When going over your accounts, it is easy to make common accounting errors that can cost you a lot of money. That’s why we are going to look at some of the most common of these mistakes and help you learn how to avoid them. You want your tax information to be as accurate as possible this April!
Accounting Errors Businesses Commonly Make
While there are hundreds of possible errors to make while accounting, the same few tend to pop up repeatedly. Just about every business makes them at some point. The following are the most common and require a careful eye to catch:
- Accidental omission
- Mistakes with recording cash flow
- Failure to calculate a budget
- Mixing personal and business finances
- Incorrectly classified data
- Simple data entry errors
Have you ever found yourself performing one of these errors? If not, there’s a good chance you didn’t know how to spot them. We’re not saying that you made these errors on purpose or regularly. However, being able to know what they are and detecting them before they occur is crucial to avoid serious accounting problems.
Spotting These Errors in Accounting
The accidental omission of relevant information is typically easy to catch. Go through all your records and pay attention to the numbers on your receipts. If they don’t quite match up, you have probably made this error. Cash flow errors are usually related to mistaking income for other forms of cash. Remember, income is the money you earned directly through sales or providing services.
Failure to calculate a budget is one of the most fundamental errors. Spotting it is as easy as asking yourself where you are getting your information and how it affects your budget. When mixing personal and business finances, only ask yourself whether the expense benefited your business or you. For example, a new car that you use to drive to work is not a business expense, even if you perform work errands in it.
Improperly classified data is a little trickier to spot. It requires taking the time to understand your classification system, double-checking where this information is, and making sure to sort your accounting information accurately. This means you can catch data entry errors and avoid letting them influence the rest of your accounting process.
Avoiding Errors of Accounting
The best way to prevent these kinds of errors is to create an organization system that keeps everything in order. For example, you need to have folders for cash flow, income, debts, and various bill payments. These folders should be separate and carefully labeled to ensure you make no mistakes.
Next, you need to organize everything chronologically. Take the time to ensure everything relates to your business, and then carefully input all your information. Rushing through it will only lead to mistakes. We know it isn’t exactly exciting, but double-checking your work is also an important task.
Taking Steps to Avoid Accounting Errors in the Future
As you can see, avoiding accounting errors is nowhere nearly as difficult as it may seem. It simply takes a skilled hand and a careful approach. Double and even triple-checking your work is always a good idea before committing it to your archives.
Even better, have a second person look over you accounting information and match it with theirs. Using a double-book accounting method is an excellent idea. It can help you catch any mistakes mentioned above and create accurate financial information.
Contact our team at Incompass Tax & Accounting today to ensure you avoid common accounting errors in the future.