Bookkeeping Errors and Ways to Avoid Them

Tuesday, 22 Feb 2022

Bookkeeping is one of the hardest nuts to crack for small business owners in Melbourne who are dealing with the pressure of scaling up quickly. Some of them try to work on the books themselves but cannot keep up with the burden.

The time-intensive task needs day-to-day recordkeeping and other activities, including bank reconciliation, budgeting, payroll management, invoicing, tax submission, etc. Naturally, in their haste to complete the tasks, they make mistakes and pay heavily for them.

Thus, most of them prefer hiring an professional bookkeeper Melbourne who can stay on top of the books and create accurate and error-free records, invoices, and reports. As a business owner, you must be aware of the common bookkeeping mistakes that can affect your finances and the ways of avoiding them. Let us help you understand them.

Improper Recordkeeping

Not having an organised system for recording transactions is the biggest blow to the business. Thus, business owners must build a recordkeeping system that stores financial information securely. It must provide access to designated members of the management, who can retrieve the files when needed. The files must be organised with clear titles and authorisation rights.

The old entries in the books must be archived chronologically with proper categorisation. The data must be backed up to stay safe in case of loss or theft. To avoid the problem of inefficiency, entrepreneurs in Melbourne must get cloud-based accounting software that allows them to have a day-to-day bookkeeping process in place. It correctly records every transaction and keeps the books up to date.      

Missed Entries

Even one missed transaction can make a lot of difference to the books. It is a common mistake when you are doing the books yourself or have given the responsibility to an amateur. Forgetting about paper bills or petty cash transactions is one of the common mistakes.

The person in charge of bookkeeping may fail to record a small business expense, such as coffee supply for the office, or may misplace a bill that does not get recorded. Thus, it is essential to have a dedicated professional working on recording every transaction without fail.

Incorrect Classification   

Untrained people taking care of the books can enter wrong details into accounts payable and accounts receivables. It transforms income into expenditure or vice versa by interchanging the entries and creating a mess that can lead to errors in calculating the financial health of the business and paying taxes.

Only a professional can make sure that such errors do not occur as they are experienced and expert in bookkeeping and have been doing the job for years. Hiring a professional in Melbourne from the same industry aids in getting the best results.

Lack of Cash Management

When unprofessional people are managing finances, they are inept at tracking the incomings and outgoings. It leads to overspending and disorganisation. There is no analysis of the financial reports or identification of problem areas that are causing losses. The lack of skills leads to cash deficits and uninformed financial decisions that lead to debts and even bankruptcy.

Conversely, professional bookkeepers are responsible for maintaining a positive cash flow for the business in Melbourne. They provide the business owner with cost-cutting ideas and keep the expenses within the defined budget. They also offer advice on improving sales to make the business profitable. Their input aids the business owner in identifying opportunities and steering clear of threats.

Duplicate or Incorrect Entries

Manual entries can lead to entering the same transaction twice by mistake or entering the wrong number due to a typing error or gap in recording information. It can be a serious problem as it can affect the entire calculation and the balance sheet.

To avoid this problem, the business owner in Melbourne should reconcile bank accounts. It helps in identifying the miscalculations and errors in recording transactions. It must be done monthly or weekly, depending on the nature and need of the business.

Not Reconciling Bank Accounts

Entrepreneurs in Melbourne who do not invest in hiring a bookkeeper end up ignoring reconciliation of bank accounts. However, it is one of the biggest mistakes as they forget to separate the business account and personal account. Thus, bank reconciliation is essential as it helps in eliminating errors in bookkeeping.

Bank reconciliation helps in identifying frauds and embezzlements. It is also helpful in finding out any delays in getting the receivables. Bookkeeping professionals are involved in regular bank reconciliation to keep the financials in check.

Not Preparing for the Tax Season

Entrepreneurs are absorbed in so much work that it becomes challenging for them to track the latest tax regulations in Melbourne, which can lead to penalties. They may not be aware of the deductions their business can claim and can overpay taxes, which can become a significant expense for the company. Also, they may not have all the proof to claim the deductions and can lose money unnecessarily.

Thus, it is vital to prepare for the tax season in advance by keeping a proper record of all the deductible business expenses. The latest state laws must be kept in mind while calculating the taxes for the Melbourne-based business. Hiring a professional also helps in getting all the financial reports ready for submission along with tax planning.

Conclusion

Whether it is a small business or a large one, they all need a proficient bookkeeper in Melbourne to keep the finances in control and well-managed. It can help in averting several accounting blunders and puts the company on the path to success.  

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