At the early stage, many business owners can successfully meet accounting requirements independently. As the business expands, it is often difficult to predict future accounting demands. As the company grows, accounting becomes more complex, and some common blunders occur.
Here are the most widespread mistakes every entrepreneur wants to take care of:
1. Data entry errors
Handling large volumes of data is not easy. It requires attention to detail and a high level of assurance of data accuracy. Some common issues with the accounting data entry are:
- Working with the wrong account and listing items in it
- Confusing numbers while transposing
- Adding or leaving a digit or a decimal place
- Duplicating an entry
- Omitting an entry
Such mistakes can have significant consequences for one’s business, like incorrect income reporting or cash flow information. It is easy to fix these errors with the automation that cloud accounting can offer.
2. Lack of organization
The second common fault many entrepreneurs have is a lack of organization. Firsly, Accounting requires excellent organizational skills. Secondly, one must record every transaction, and store or digitise all receipts for future reference. Lost receipts might get you into trouble when you need to file your taxes. To resolve this problem, keep all the documents in one place and create accurate records of all the transactions.
3. Assuming that profits and cashflow are the same things
Profit and cash flow are frequently confused by business owners who are not proficient in accounting. A company can have positive earnings while yet having negative cashflows. Because of this confusion, a business might go bankrupt or become insolvent.
The difference between the two is that profit shows the amount of money left after all expenses are paid, while cash flow shows the net flow of cash into and out of business.
The owners of small businesses should regularly evaluate their financial records to analyze their cash flow and factors that affect it.
4. Not performing reconciliations often enough
Reconciliations ensure that actual money spent or earned is the same as the money leaving or entering an account. Bank financial statements must be verified using internal records. Auditor and accountant reconciliations help discover irregular transactions that may violate regulations.
Last-minute reconciliations are hazardous. Unreconciled accounts might contain accounting errors for a long time. Uncorrected errors can mount and lead a financial shortage, ending up as the loss of reputation in the eyes of the suppliers.
Timely reconciliations help track the cash flow better. Ideally, reconciliations should be done once a week or once a month for a small number of transactions.
5. The absence of adequate procedures for documentation
Businesses in Singapore must preserve transaction records for, at least, five years from the end of the financial year in which the relevant transactions occured. So, having the proper procedure to save and store the records is crucial. Eventually, paper-based solutions are not sustainable eventually as they occupy a lot of space and are frequently lost. Using software with data capture tools to automatically gather and classify invoice dates and amounts can be a helpful solution. Automa8e can help you track every transaction, which you can later access at any time and from any location.
How accounting mistakes can affect the future of the company
Without reliable financial data, management, lenders, and shareholders cannot make sound company decisions. Profit losses and a damaged reputation due to mistakes are only two of the many adverse outcomes that affect many firms. Your reputation is at risk when your company’s financial information is compromised, which affects the company’s credibility and leads to stakeholders losing their trust. Lost trust makes it more challenging for entrepreneurs to secure financing. Business owners must be aware of the potential consequences of accounting mistakes and take measures to mitigate them.
Case in point:
An investigation into HealthSouth uncovered potentially fraudulent activity of up to $4.6 billion. As part of the fraud, HealthSouth made inaccurate entries and performed false accounting for goodwill, as well as incorrect accounting was performed for numerous aspects of purchases. In addition, they made other mistakes in accounting, such as classifying receivables owed to the corporation as income in the financial statements. At least 15 of the company’s employees are responsible for making these false statements on the company’s accounting methods.
How to avoid accounting mistakes
Use budget as a reference
Making a budget will help you become more aware of the costs associated with running your business. And besides, you cannot operate your company without being aware of whether you are incurring unnecessary expenses. To solve this problem, you need to make a budget to identify which of your spendings are essential and which you can reduce. It will not only help manage your expenditures but also offer you a benchmark you can use to compare against.
Tracking your company’s expenses and reducing the number of mistakes your company makes is possible and highly recommended. A reference to compare the actual amounts can indicate areas where errors could be made.
Use a cloud-based accounting software
Accounting software is one potential answer because it can automate much of the work involved and significantly reduce the number of errors. It helps automate procedures and, as a result, saves time. Errors in the company’s accounting can be complicated and expensive. Mistakes in accounting can be difficult to avoid. The greater the volume of transactions, the greater the likelihood of mistakes. The risk of errors may be reduced significantly, and the quality of bookkeeping practices improved thanks to the implementation of accounting workflow automation.
Cloud accounting software can be a great alternative to regular accounting practices in Excel or on-premises accounting software. It stores and automatically processes substantial amounts of data. Cloud accounting gives the flexibility to access information from any location and provides real-time data reports. Automa8e is a cloud accounting solution that helps automate primary accounting operations reducing the number of mistakes. You can try it for free today.