Accounting ecosystems are incredibly complex, and getting an accurate financial picture of your business relies on accurate date, following processes that ensure the accuracy of that data, and setting up systems that help you manage your business effectively. When these elements break down, you’ll find yourself dealing with an unfortunate accounting issue.
Let’s break down 7 common accounting issues that could be affecting your business.
1. Inaccurate or Duplicate Data Entry
The most common accounting issue we see in new clients (and why we offer bookkeeping software cleanup services), is inaccurate or duplicate data entry. These issues can be as simple as a misplaced decimal point or two numbers being switched to even bigger errors like missed line items or inputing into the wrong area.
While most accounting softwares follow double entry bookkeeping standards and offer automations to reduce the risk of error, human input is still required, and with human input and data entry there is always room for error.
Data entry issues can be a huge pain to rectify, which is why it’s important to reconcile statements and all transactions. Periodic internal audits or checks from a CPA can help keep your records accurate as well.
2. Unreconciled Statements
As you might have guessed, the next most common error we see is unreconciled statements, whether they are account statements, bank statements, or credit card statements.
Reconciling your statements is one of the top tools in your accounting toolbox to ensure that records are accurate, and this process is crucial to every single business’ process, whether you are freelancing on the side of a day job or a multi-employee business.
If you are leaving statements unreconciled, you might be missing duplicate transaction, inaccurate charges, instances of theft, or other errors. This is a straightforward way to protect your business’ financial health. We can’t press enough the importance of reconciliation.
3. Miscategorized Expenses and/or Transactions
Whether you’re inaccurately tagging software and hardware expenses, or adding transaction details to the wrong account, miscategorized expenses and transactions can really screw up your entire accounting ecosystem.
While this can disrupt the accuracy of your reports and your cashflow, come tax time this can cause major issues. Expenses absolutely must be correctly categorized for accurate tax reporting, and miscategorizing expenses or transactions can throw off your depreciation calculations and even cause you to misreport expenses and income.
4. Ignoring Depreciating Assets (or not calculating correctly)
A depreciating asset—such as a computer, piece of equipment, or company vehicle—affects the valuation of a company’s total assets. If you ignore depreciating assets, you are missing out on valuable tax breaks and accurately portraying your company’s asset value. But, you must make sure you calculate these depreciation values correctly. If you’re not sure if an item qualifies as a depreciating asset, or if you did not claim something you should have the previous year, speak to your CPA and/or accountant.
5. Paper-Only Record Keeping (or record keeping without backups)
Paper-only record keeping is inefficient and much more error-prone than software-based accounting, however, no matter what approach you take, it is absolutely critical that you back up your data. Most accounting softwares conduct automated backups and stores your information in the cloud, so you can access it from anywhere and don’t have to worry about losing valuable information if your computer crashes.
Record storage is a critical component of accounting. If you prefer the ease of paper-only record keeping, you may want to consider bringing in a computer-savvy individual to input your paper records into an accounting software program that also manages backups.
6. Not Having Internal Controls and Workflow Standards
Internal controls, workflow standards, and designating roles in a way that ensures data is checked for accuracy by multiple people helps prevent fraud, ensure records are accurate, and keeps your data and reporting accurate.
If you don’t have internal controls, or your internal controls aren’t robust, you might end up with inaccurate financial statements, missing money and assets, inaccurately filed taxes, and many other issues.
An accounting and CPA consultant can help you establish controls that segregate duties, offer second-checks, and protect your company’s financial health.
7. Not Working with a CPA
While some areas of accounting can be handled by other professionals (i.e. bookkeepers updating your ledger, HR professionals issuing payroll), this all should ideally be done under the watch of a CPA. A CPA understands accounting best practices, ever-changing IRS regulations, accounting standards, and how to set your accounting system up to run efficiently and effectively. Without a CPA, your company is at risk for error.
There are so many elements of accounting that make for challenges when data isn’t issued accurately. Taking a proactive approach, ensuring you are practicing due diligence, and taking the help of a Certified Public Accountant can help make sure that these accounting mistakes don’t impact your business in the day-to-day or at tax time.
