Top 10 Accounting Mistakes

Date Published: August 6, 2020

When it comes to accounting, many business owners think they are able to cut costs by simply doing it themselves or having an in-house staff member take care of it. While in the short run this very might be true, you could be saving money by simply letting your assistant do it. But what happens when the accounting process becomes more difficult and time consuming to manage? This is when we see most mistakes erupt with businesses in regards to accounting. This is why we created the "Top 10 Accounting Mistakes”.



Our “Top 10 Accounting Mistakes” is a list of the most common accounting mistakes we see business owners make on a daily bases. These mistakes include commingling properties accounting, mishandling receipts, improper use of credit cards, and more. These mistakes can become quite costly to a business and can put you in a tight situation with financial entities. By utilizing this article you will not only know what these mistakes are, but will also know how to avoid them as well. Understand these mistakes and implement a proper accounting system for your business that will not only let it grow, but will allow you to profit from it as well.

1. NOT Hiring a Professional Accountant

In order for a business to grow, it demands attention and makes time a valuable resource in regards to running a business. This is why many business owners have found that if they focus their efforts on working in and around growing their business rather than spending time on bookkeeping, they can actually make more money. Keeping good accounting records becomes more important as a business grows, but the work that is required to maintain good records also becomes more time consuming. Furthermore, accounting is quite complex and acquiring professional assistance can go a long way in helping owners get the information they need to run their business. When outsourcing your accounting, you are receiving a higher quality of work in a quicker amount of time. This will then lead your business to better decision making, higher revenues, and increased business growth. By spending money and hiring a professional accountant, you are saving your business its two most important assets; time and money!

2. Mishandling Receipts

Mishandling business receipts is one of the more costly accounting mistakes business owners frequently make. To avoid losing critical information about their transactions, it is important for companies to keep every receipt they have. By keeping receipts organized, business owners are able to assess their spending more easily and accurately. This will also become very beneficial for tax season as there will be no rush to find various receipts, correct mistakes, or find the exact information pertaining to each transaction. Simply put, stay “organized”. Saving and properly recording receipts might take a little extra effort for each transaction will save you time in the end, as well as ensure that your business shows accurate balances at the end of each accounting year.

3. Careless Banking

Whether it is a small or large company, there are many ways in which business owners can make mistakes regarding banking. Mistakes such as:

• Not separating business bank accounts

• Failing to reconcile bank accounts

• Not keeping records of deposits

• Forgetting important details involving transactions

But to make matters worse, most business owners don’t become aware of their careless banking until a problem arises, such as an inaccurate accounting register. When carelessly handling your businesses banking you create costly problems that can become detrimental to your businesses operations. Don’t be a business owner that partakes in careless banking. Avoid these four banking mistakes and keep your business away from any costly incidents.

4. Incorrectly Accounting For Cash

Cash is one of the most important assets in running a business. It is the asset that allows you to pay for all of your expenses and invest in aspects that can help grow your business. This is what makes accounting for cash so important in today’s business world. You must be able to account for all of your cash, justify where it has come from and where it is going. By accounting for cash, you are preventing from any cash being mishandled and any issues with the IRS concerning your businesses cash flow. Follow these tips and learn to properly account for cash:

• Track your expenses that you pay in cash

• Keep your receipts

• Avoid paying with cash

• Use credit or debit cards or checks

• Create an expense report for your cash transactions

• Create a petty Cash Fund for your daily business expenses.

5. Misusing Business Credit Cards

As convenient as credit cards are for businesses; it is quite easy for business owners to fall in the trap of using them incorrectly and losing money. This is why it is very important for businesses owners to make sure their business credit cards are utilized in the correct manner. Business credit cards are meant to be used for legitimate business expenses. Avoid using your business credit cards for the reasons listed below and properly utilize your credit cards:

• Using your business credit card for personal expenses

• Using your business credit cards for more than one business

• Not paying your debts on time

• Failing to negotiate the credit card interest rates

• Forgetting to back up your receipts.

6. Commingling Properties Accounting

One of the biggest mistakes business owners who own multiple businesses make is commingling their various properties’ accounting. While running multiple businesses you want to be able to evaluate the success for each property individually. If each of your business properties were to be recorded under the same accounting journal with no distinction, you wouldn’t be able to see if one of them needs more attention than the other or could even possibly be failing. Begin by first stopping the mixing of transactions from different properties and keep them separate from one another. Then make sure you have distinguished the important deadlines for each of the properties, such as tax deadlines and important payment dates. Separate your expenses, costs of insurance, and mortgages into different accounts. By separating each of the properties in this fashion you give yourself a better indication of how each property is performing and allow yourself to make better managerial decisions in regard to each property.

7. Improper Charts of Accounts

When it comes to accounting, keeping your finances organized is the key to success. Yet, many business owners tend to lack in this organizational aspect of accounting. One of the reasons is that they do not keep a proper chart of accounts (COA) and, as a result, fail to properly track their finances throughout the year. The COA consists of all financial statements that are tailored to show the specific operations and transactions a business undertakes. This chart then allows you to have a better understanding of the financial position your organization currently is in, which allows you to make quick decisions when needed. Not keeping a proper COA will result in mistakes which eventually becomes quite costly to your business. Learn to get organized and implement a proper chart of accounts to your business.

8. Accounting Backwards

Everyone starting a business, no matter what kind, hopes to see it succeed as early as possible. However, it usually takes a while before a company can see profits and, unfortunately, not all businesses make it in this competitive world. Things move very quickly and can become quite overwhelming. This is why you must always be prepared and organized to keep up with the fast paced speed of running a business. Especially when it comes to accounting, where deadlines can be strict and penalties can be severe. In order to be able to catch up and stay on top of your accounting you should avoid procrastination. Procrastination can kill your business! Learn how to prioritize your tasks and don’t wait until the last minute! Keep track of everything going on in your business and never forget any necessary details. Implement aspects such as keeping a schedule and establishing a daily routine. By implementing simple aspects like this, you can help prevent your business from ever falling behind due to procrastination.

9. Neglecting Organization

Neglecting the organization of financial records for a business is a mistake made over and over again by business owners. For small businesses or even large ventures, maintaining organization of these records is an essential part of the accounting process. Keeping business records organized makes it easier to monitor a business’s progress, allows it be better prepared for tax season, and will ideally save time and money. This is why accountants suggest organizing your financial records into a proper filing cabinet system. By setting up your filing cabinet to these specifications you can keep organization within your business’s financial records:

• Separate all customer/vendor files by accounting years

• Clients should be separated into different files

• Tax forms and other tax related documents should be kept all in one place

• Business operating forms should be kept in the same place as well

• Most importantly, all records should be saved electronically to avoid losing crucial information.

10. Using the Wrong Accounting Software

When running a business, knowing where it stands financially is both important in understanding the overall company and how to make it successful. Being aware of the company’s financial health also allows business owners to make sound management decisions that could not be made correctly without knowing how much money can be spent or what can be afforded. This is where accounting software comes into play; many business owners do not utilize accounting software or just decide to cut cost and use products such as Microsoft Excel. While Microsoft Excel is a great tool, it really isn’t your best resource when it comes to keeping your accounting in order. Investing in minimal cost software such as QuickBooks or Peachtree for your business can be beneficial in the long run and allow your business to achieve its main objectives. By investing in accounting software you provide your business with accurate financial reporting, valuable information, quicker turnaround time and lower accounting costs.

In Conclusion

It’s quite easy to commit each of these accounting mistakes, but it is just as easy to correct or avoid them. Following the tips suggested is a great start to getting on track with your accounting. However, for more accurate results it is always a better solution to hire a professional accountant. They are able to help businesses every step of the way, and their expertise allows money to be saved and time to be better utilized. Help your business by getting help from a true accounting professional.