Accounting mistakes that could be costing your business

Like most things, accounting is easy when you know how. But mistakes that run undetected for months, or even years, can cause your business to lose money! 

Your accounts give you basic information upon which you make decisions about your business. 

For example, “What are my sales?”, “How much money is in the bank?”, “How much money am I owed?” or “Am I making a profit?”. 

If your accounts are not giving you the right answers to these questions, you could end up making the wrong decisions. Many have turned to software for their accounting needs, believing this will help them avoid mistakes and that their books will be balanced and correct. WRONG! 

Your software is only as good as the person inputting the information. 

In this blog we look at some of the most common accounting mistakes made. 

  1. Reconciling the Accounts

You have to reconcile your bank accounts to ensure that all the transactions you have entered are complete and accurate. This applies whether or not you use software, spreadsheets or even manual books.  If you don’t routinely check your bank statement against the transactions that you entered, you could have omitted some transactions from your accounts.  

  1. Your Customers

You issue sales invoices to your customers. Customer payment terms can differ. Some pay on completion of the job, some pay a deposit and the balance is paid when job is completed, some have a 30 day account where they could pay one or more invoices at once. You need to pay careful attention to late payers, for a variety of reasons. It can be a signal that: 

  • your customer is in financial difficulty 
  • your customer may be disputing your invoices. This can alert that the quality of the goods that you have invoiced is not satisfactory, or that your invoicing procedures just simply aren’t up to the mark and you haven’t invoiced your customers accurately. Either way, disputed invoices often don’t get paid. The longer a dispute goes on, the less likely you are to get your money. 

You need to check your customer statements at a minimum every month, before you send them out, to make sure that they are accurate. If customers don’t pay, you need to know why. 

  1. Your Purchase Invoices

Every purchase invoice that you put into your books should be checked, and invoices should be matched off to delivery notes and any quotes. This procedure would confirm if you actually received the goods and whether the goods were charged at the correct rate that you agreed with the supplier.  If VAT is applicable, is the rate of the VAT correct? Finally, does the invoice add up correctly? 

Again you may think that all these checks for VAT and adding up is crazy because the invoices are produced on a computerized software. But (yup, here it is again!) – SOFTWARE IS ONLY AS GOOD AS THE PEOPLE INPUTTING THE INFORMATION. Laziness for not checking the invoice could cost you money! 

  1. Your Suppliers 

You need to check your supplier accounts every month against the statements that they issue to you. This can give you information such as how much you spend with that supplier per month, which can be used to negotiate new prices. You can quickly identify if you have not entered an invoice onto you books or even that the supplier hasn’t sent you the invoice yet. 

The list of potential accounting mistakes is endless. You could have made a payment to the wrong supplier, be due a credit note, or have entered an invoice twice.   Unless you put strict methods in place, you will have mistakes and could end up in paying for goods that were never received or overpaying for something. 

  1. Your sales 

When you set up your business, you need to identify what your sales are and how they are to be accounted for.  

Sales are easy to record once you have recognised the basics of what you are selling, to whom and when. Once identified, it’s easy to set up a system to record sales correctly. This way you can track what brings in revenue for your business!  

  1. Cash 

Cash needs to be controlled very tightly, in particular when starting a business. It is so easy to use the cash on items you think you should have more than the items you need.  Buying a new laptop to do your accounts may make you feel more professional, but wouldn’t it be better to use the old laptop for now and use the cash to buy goods/stock to produce the sale for the business?  

Reconciling bank and petty cash accounts is vital.  Not all businesses have tills, so when handling cash, make sure you have a way of recording and controlling it.  Reconciling the cash can identify a number of potential issues, it’s very easy to accidentally give the wrong change or miscount.  

  1. Entering transactions twice

It is easy to enter a transaction twice. You will probably never notice this, unless you reconcile your accounts each month. Entering transactions twice can give you false information, you could be overstating your income and expenditure, or overpay/underpay VAT. 

  1. Read your accounts

When your transactions are put into your books, you should go through every account to make sure that they make sense to you. Make sure you know what makes your business profitable and that you know the areas where you spend your money. 

The issues above can all be solved by using a methodical approach to your accounting records. This post doesn’t cover every error that is possible, but it should give you an idea of how easy it is to make accounting mistakes, but yet how easy it is to prevent them from happening in the first place.  

Putting procedures/methods in place before you start your business will help you keep to a routine and are easy to maintain. 

Make sure that little errors do not add up to big losses! 

You should always consult with your accountant / bookkeeper when setting up your accounting system, to make sure that your system is tailored to best suit your needs.  If you need any help please contact us.

What accounting problems have you encountered in your business? We’d love to hear from you! 

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