Here’s a list of the most common bookkeeping mistakes we see (and can fix) time and time again.
GUESS YOUR WAY
Entrepreneurs tend to guess bookkeeping when they need clarification on what they’re doing. The problem is that guesses add up over time, and by tax time, he may have to revise a year’s worth of books.
Some examples are:
- Incorrectly categorizing expenses
- Oversight of tax credits
- The book was not ready in time, and the deadline for submission was missed.
If any of the above sounds familiar, don’t worry. Below are instructions on how to avoid these errors. For now, when creating a book, trust that you are going to use your knowledge to the best of your ability. If you’re new to accounting (or don’t know anything at all), brush up on the basics with our step-by-step guide.
ACCOUNTING BOOK FOR BEGINNERS.
If outsourcing the task to a professional makes sense, read our tips for hiring an accountant before you start looking.
WASTE MORE TIME THAN NECESSARY
If your accounting system is aligned with your business, you’ll save time on bookkeeping. Fortunately, this situation can be easily avoided. It’s important to set up a custom chart of accounts from day one. If you don’t know how to solve this yourself, an accountant or accountant can:
- Adapt your chart of accounts to your company
- Enter opening balance
- Teach them how to properly categorize their expenses before they start writing their own book.
- Provide a “financial” checklist that should be worked on a regular basis (weekly or monthly)
WHAT IS YOUR BIGGEST ACCOUNTING CHALLENGE?
Procrastinate until guilt drives you crazy.
No one really enjoys accounting and bookkeeping (except us, of course). But if you want to wait until your shoebox is overflowing with receipts and you’re guilt-ridden with accounting, the results can be disastrous.
- I need to remember what receipts and transactions were actually for (let alone how they were paid).
- Bank reconciliation becomes a nightmare.
- You may need to remember to document your tax-deductible expenses (which means you’re not maximizing your small business tax credit for the year).
- It would be best if you had more time to find and fix errors before they become bigger problems.
- Make business decisions based on outdated financial data.
Make your book at least monthly. Weekly at most. Daily if your Accounting And Bookkeeping Services In Dubai are insane (if you really need to adjust daily, you’ll need to hire an accountant).
COMBINE BUSINESS AND PERSONAL EXPENSES
I invited a customer to lunch but needed to remember my business credit card. Don’t worry about bookkeeping. Can I pay with my personal debit card? During busy times, it is easy to pay for business expenses with personal funds. But in the long run, messing up your finances can make accounting (and taxes) a maze. It can remove a layer of legal protection in case the company is audited or sued.
To avoid this trap, get into the habit of not spending your money on business expenses (and vice versa).
HERE ARE SOME OF THE TIPS TO HELP YOU KEEP EVERYTHING INTACT:
- Oversee your commerce accounts in their claim little commerce bank account
- Get a devoted little commerce credit card
- Put a sticker on your trade bank cards so you do not befuddle them along with your individual bank cards.
- Keep a little sum of cash in your commerce checking account to cover fast, different commerce costs (so you’re not enticed to utilize your individual cash when your trade accounts are drained)
Of course, in the event that you accidentally pay for an individual cost together with your commerce card (or bad habit and vice versa), it’s not the conclusion of the world. You’ll reimburse your trade account for the buy or record the buy as an “Owner’s Draw.” But why bother i
n case you’ll dodge the bother within the, to begin with, put?
NOT Perusing YOUR Budgetary Articulations
Monetary explanations are a coordinated window into your business’s money-related execution. You need to read them regularly (or you need to learn how to read them at all) to avoid losing out on a few big-time op
endings to produce income and bookkeeping maintain a strategic distance from money-related catastrophes.
Budgetary articulations can assist you:
- Remain in control of your cash
Make and adhere to a budget
- Spot ways to maximize your charge conclusions for the year
- Effectively apply for a bank
See monetary patterns in your trade
- Know when to spend and when to spare
- Make keen money-related choices that offer the assistance your trade develop
- Appear to potential financial specialists about how your commerce is performing
How do you discover any of the over in your financials? Learn how to study money-related articulations and inquire about your CPA for counsel. You may be superior prepared with financial data, and your trade will be an advantage in the long run.
If receipts are lost (or you throw them in the trash), you won’t be able to bookkeeping save the deductions you made on your tax return during the audit. You may also be fined.
Here are a few things to keep in mind about keeping receipts:
- Keeping a digital record of your receipts is perfectly fine
- You may be required to present a receipt if your business is audited
- For added security, you must keep receipts for seven years
Please take a picture of receipts on your phone and store them in Google Drive, Dropbox, or Evernote. Whatever is the simplest? You can also upload photos of your receipts to the accounting software you use. (If you decide to let Bench do the accounting firms Dubai for you, you can also upload and store any documents you want in the Bench app.)
Also, be sure to detail all expenses (especially for meals and entertainment). This will allow you to easily find your supporting documents and prove the deduction during the audit.
Hire an inexperienced accountant.
When it comes to hiring an accountant, you get what you pay for. The bookkeeper you find on Craigslist for $8/hour is worth… $8/hour.
Hire someone with accounting experience in your field. They’ll have accounting tips and tricks specific to your industry. And they will be able to make your book faster.
Do not hire CPA
If you are serious about growing your business, you need to hire a CPA.
- Know how to maximize your niche-specific small business tax deductions
- Help you make year-end tax changes
- Explain your sales tax obligations
- Represent you in the audit process
- Highlight strategic financial decisions to grow your business
You need to do more than just some of the above, invest the money and hire a professional.
Oh, and while we’re at it:
Don’t outsource your accountant to your CPA. Accounting fees are much higher than an accountant’s hourly salary.
RECORD PAYMENTS TO YOURSELF AS AN EXPENSE
We’re getting to the core here, but we see this accounting mistake quite often. Sole Proprietorship and Sole Proprietorship:
When paying yourself, don’t categorize payments as expenses. That’s an easy mistake to make. But it will reduce your overall profit and show the wrong total on the income you have to pay taxes on.
Instead, record these payments in an equity account called “Owner’s Draw.”
TRANSFER REPORT AS INCOME
Does your business receive money through multiple accounts? For example, do you receive payments to a PayPal account or a TransferWise account? You can transfer this money to your company’s checking account. When you do, be aware that accounting software will usually record this transfer as income (as the total cash in your checking account increases).
Each time this happens, you will need to log in and update the transaction so that it appears on your books as “transfer” (income moves between accounts), not “income” (new earnings are deposited into your checking account).
IGNORE SALES TAX
Honestly, the tax authorities don’t care if you know your sales tax liability. They only care if you pay the sales tax you owe, whether or not you collect sales tax from your customers. Our best advice is to have your CPA identify and explain sales tax responsibilities before starting a business. If you still need to consult a CPA, there is always time to schedule a recording.
A good CPA can help you:
- Understand your sales tax obligations
- Collect sales tax correctly
- Know your sales tax filing deadlines
- Pay your sales tax ahead of time
Sales tax can be confusing at first, but gradually it becomes easier to understand. Learn the basics with our guide:
SALES TAX BASICS:
New Entrepreneur’s Guide (USA) and How to Calculate GST, PST, and HST (Canada).
Understanding your sales tax liability will help you avoid owing a surprising amount at tax time. Need to classify employees properly.
Is this worker you hired an independent contractor or an employee? If you get it right, you will save your book. You run the risk of being heavily fined by the IRS.
The IRS is tough on this rule because some business owners intentionally misclassify “employees” as “contractors” to avoid taxes and bureaucracy.