10 most common bookkeeping mistakes small business owners make with their business finances.

Posted 1 week ago in Small business

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1. Neglecting to save receipts under $75.

Even if they may not be required by the IRS, receipts under $75 provide supporting documentation for many of the deductions you may be able to claim. Although they still need to be kept in a file or box in the case of an audit.

Most online and digital accounting programs have companion apps that let you take a picture of your receipt and associate it with the appropriate registry entry. If you prefer to keep your receipts individually, there are many third-party applications to choose from. Hire freelance bookkeeper

2. Failure to track reimbursable spending.

Failure to track your reimbursable expenses is like throwing money into a bathroom. Not only can you lose money, you can lose tax deductions, which is basically the same thing.

Again, there are plenty of expense-tracking apps and programs available to make this process easy and consistent. Try to get into the habit of tracking your expenses as they accrue. The longer you are without follow-up, the more likely your expenses will be overlooked. Accounting software free

3. Failing to properly classify employees.

With so many independent contractors, consultants and freelancers at the present time, it can sometimes be difficult to determine who is on staff and who is not. Don't let this go, though. Misclassification of employees and contractors can have important consequences, such as tax penalties and prosecution.

4. Not communicating.

Whether you choose to hire a part-time accountant or contract out the work to a professional, communication is the key to effective record keeping. Because it keeps everyone on the same page and keeps mistakes to a minimum. One of the most common mistakes, for example, is paying someone a bonus and not reporting it to the bookkeeper. Another is buying supplies and not issuing receipts to the accountant.

5. Neglecting to reconcile.

Reconciling your books with your bank statements is critical to determining your financial health. It is important to ensure that this is done in an appropriate and consistent manner. Reconciling your books helps you identify how much cash you have on hand at any given time, and it also allows you to discover bank errors before they become major problems. Reconciliation can be complicated, however, so hiring a seasoned accountant is highly recommended.

6. No paper backup.

When it comes to audits, a paperless office can actually be a significant liability, especially if there are technical issues. Taxing authorities like the IRS want to see a paper trail that includes clear visible documentation and a well-organized system of paper backup copies.

Apps that record your receipts can make day-to-day operations easier, but it's always important to maintain a backup of your financial data for at least seven years. Hire freelance accountant

7. Failure to claim or deduct proper sales tax.

Due to the explosion of e-commerce over the past 10 years, sales tax has become a complex issue for many small businesses. Historically, the mistake most often made was simply not deducting sales tax from total sales, which would result in lump-sum surprises at tax time.

While this is still true, recent changes to federal law have made collecting sales tax more complicated when it comes to online, state-to-state enforcement. Make sure you and your accountant are familiar with the latest rule changes, so you can be compliant and limit your overall tax liability. Freelance bookkeeping services.

8. Petty cash nonchalance.

Each small business that uses petty cash should have a dedicated custodian to manage and approve purchases. This ensures accountability and reduces the risk of fraud, theft and abuse. To this end, companies should have clear policies when it comes to petty cash purchases. And every purchase made with petty cash should be accompanied by a receipt for the expenditure to maintain clear documentation for deductions at the time of tax.

Receipts and the rest of the cash must correspond to the initial amount assigned to the fund. When the fund is depleted, a cheque can then be written in cash to restate the total amount. Not having a petty cash policy, custodian or receipts can create headaches for your accountant and can lead to serious problems when taxes are produced. Hire accountant online.

9. Miscategorization or overcategorization.

Maintaining a clear and organized chart of accounts is key to keeping your books. While most expense categories are fairly standard and straightforward, the mistake many company owners make when doing their own bookkeeping is creating duplicate categories or failing to enter expenses into the appropriate category.

Maintaining a clear and organized chart of accounts is essential to your bookkeeping. A professional accountant can help you clean your books and make sure your ledger plan is clean. Hire accountant online.

10. Trying to do it yourself.

Most small business owners hate doing their own books but insist on doing it themselves. Competent and professional accountants have the skills to do the work quickly and effectively, and they have the expertise to spot subtle errors that might otherwise be missed.

As professionals, they will also be aware of tax changes that may impact your everyday financial practices. In the long run, getting a second look at your financial records is extremely beneficial and will save you time and money. Bookkeeping pricing plans