Common Bookkeeping Mistakes to Avoid
Michelle Jetzer, MBA PHR

Successful small businesses keep meticulous financial records.  With the economy the way it is, money is tight.  And there’s always the threat of the IRS knocking on your door.  It is important to know just how you are spending your company’s financial resources.  Yet many organizations or business proprietors ignore to get their financial management systems set up properly before the get hit by an audit or a bank requiring financial sheets.  Here are some of the most common bookkeeping mistakes that small businesses make:

  1. Not having an accounting procedure in place.  When small businesses get started, there is often not an urgency to have accounting procedures in place..  And, as the business grows, it is very easy to  forget and/or put off implementing appropriate accounting procedures.  Ignoring this fundamental business practice results in failed audits and potentially costly fines by the IRS for any resulting reporting issues.
  2. Open access to financial records.  Many small businesses forget or perhaps don’t realize that they can and should restrict access to critical financial information.  In QuickBooks, the most commonly used accounting software; setting up access is relatively straightforward.  Here’s how you do it in Quick Books:
    1. At the top, choose “Company” and then choose “Set up Users”
    2. Create a new user and follow the on-screen steps to decide what access that person gets
  3. Not customizing the Chart of Accounts.  Many small businesses that are new to QuickBooks or any other accounting software, simply use the standard, pre-set “Chart of Accounts”.  However, it is far more useful for businesses to create their own Chart of Accounts based on their unique needs.  Since it is so important these days to be able to prove to the IRS that your expenses are business related, it is imperative you are tracking your expenses in an effective way.
  4. Not properly reconciling accounts.  This is a critical step in the financial process and yet many organizations don’t do this!!  Most software packages such as QuickBooks handle bank reconciliations easily.  It is crucial to reconcile monthly to catch mistakes, prepare accurate P&Ls and balance sheets, keep track of income and expense, and in rare, unfortunate cases, detect fraud or misappropriations early on.  To maximize the benefits of monthly reconciliations and avoid costly cleaning up of bookkeeping files, it is essential you use this feature from the moment you open the account.  In Quick Books, you can find the “Reconciliation” feature on the “Home screen.”

Given the severe penalties handed down by the IRS for inaccurate accounting, it is important to get your books in order as soon as possible. By avoiding these four common bookkeeping mistakes, you will be on the right track for effective financial management.