Skip to main content Skip to search

Posts by AD Bookkeeping

5 Frequent Business Bookkeeping Errors You Could Be Making

Here’s the thing: Handling your own bookkeeping is a risky, tricky idea unless you have training in how to deal with numbers. But don’t let potential bookkeeping mistakes or snafus hold you back. Instead, get someone on your side who knows bookkeeping so you can spend your time focusing on the things you’re good at.

Sales receipts

Don’t believe bookkeeping is really all that complicated? Here are 5 common bookkeeping mistakes that serve as examples of how difficult dealing with business numbers can be – along with tips on how to resolve those errors if you decide to tackle them yourself:

 

  1. Labeling payments to the owner as an expense.

If your company is a sole proprietorship or one-person LLC, it’s crucial that you don’t categorize payments that you make to yourself as a business expense. This simple but incorrect act lowers your profit and muddies the waters about how much tax you need to pay. You should instead record payments to yourself to an equity account that you label “Owner’s Draw” or something similar.

If your company is an S-corporation, then you do indeed report wages that you pay yourself for salary as an expense.

 

  1. Failing to reconcile your accounts every month.

Just like not reconciling your personal checkbook, failing to reconciling business accounts is a really bad idea. Done properly, the process involves going line by line through each transaction to ensure that the data in your bookkeeping software matches precisely what your bank statement says. If there’s a discrepancy, you have to figure out the reason. It could be a data entry mistake, an import error or many other things.

Today, bookkeeping software and cloud-based solutions include tools to make reconciliation easy. You can also print out your bank statement and go through your accounts by hand. Simply look at the screen, then mark off each transaction you see on the paper statement. If you see that something on the screen and on the paper don’t match, it’s time for some investigation.

 

  1. Considering transfers as income.

Let’s say that your business has both a PayPal account and a checking account. Sometimes, you may transfer funds from PayPal into your checking account. Your accounting software may record this transfer as income. It looks like you made a deposit since your checking account ends up with more money than it had before. But all you did was move the money, not make it.

Accurate bookkeeping means you will need to see if this error is happening in your software, then manually correct it so that it’s categorized as a transfer – something that doesn’t impact your overall business income or have any impact on taxes you owe. While bookkeeping software is the way to go, it’s not perfect, and the choices it makes need to be carefully considered and verified.

 

  1. Not bothering to save receipts.

No matter whether a purchase costs a couple dollars or thousands, if it could qualify as a business deduction, you need to keep the receipt. If you purchase online, the digital version of a receipt is fine. There’s no reason to print it out. You can also take photos of paper receipts and save them digitally.

In fact, many modern bookkeeping software choices allow you to capture an image of a receipt with your phone and link it to the expense. While it doesn’t get any easier than that, many people still fail to store receipts. However you choose to do it, you need those receipts stored in an organized fashion so you can access them easily if you happen to be audited. Although advice varies on how long to keep receipts, if you use a paper system aim for at least 3 years and preferably 7 years.

 

  1. Making personal purchases from your business account.

This is an easy mistake to make, especially if your business bank card looks just like your personal one. If you accidentally use your business account for a personal purchase, you can deal with the error in one of two ways: Either reimburse your business account for the purchase and properly record this – or record the purchase as an Owner’s Draw.

Using your business card for personal purchases may seem like a good way to avoid the hassle of having to make a transfer, but all those small personal transactions make for messy and bad bookkeeping and can cause you to begin blurring the line between your business and personal assets – a very bad business decision.

 

A Bookkeeper Can Help

If you find that you’re making one or more of these mistakes, please keep in mind this top 5 list includes only some of the most obvious business bookkeeping errors. Instead of worrying or stressing out about mistakes you may be making, you have two choices: Study and learn proper bookkeeping procedures and correct your business books – or put your business finances in the hands of a professional bookkeeper.

A bookkeeping service costs less than you might think and is responsible for recording all transactions, reconciling all accounts and providing you reports about where you stand. The best bookkeepers also offer advice and information to help you plan for the future. And when tax time comes, there are no worries when you have a bookkeeping service handling your books because the numbers are mostly prepared and ready to plug into your taxes.

You could say that not having a bookkeeper is actually the most frequent business bookkeeping error.

Read more

Top 5 things you need to know about bookkeeping

  1. What is bookkeeping?

Bookkeeping is the first step towards financial accounting and reporting of a company. It is the process of recording all the business transactions of an entity occurring throughout the financial year. The main types of entries include sales, purchases, other income, operational expenses, investments, payroll, taxes and loans.

Once the transactions are recorded, they’re posted to ledgers and later systematically summarized into many different financial reports. The four main reports are:

  • Income Statement – represents the net profit earned for any given time period.
  • Balance Sheet – represents the assets, liabilities and capital owned at any time period.
  • Cash flow Statement – represents the movement of cash during any time period
  • Statement of Equity – represents movement in owner’s or shareholder’s equity
  • Chart of Accounts:

A chart of accounts is the list of all accounting heads used to book entries in the general ledger. It is a tool offered by accounting software to analyze and aggregate the financial information for the annual financial reports. Each entity can customize its COA as per its requirements; however, it typically appears in order of the financial statements. First, balance sheet items are listed and are followed by income statement items in the following manner:

Balance Sheet:

  • Assets
  • Liabilities
  • Shareholder’s Equity

Income Statement:

  • Operating Revenues
  • Non-operating revenues
  • Operating expenses
  • Non-operating expenses
  • Types of Bookkeeping:

There are two types of bookkeeping systems; single-entry and double-entry.

A single-entry bookkeeping system involves booking of only one journal entry for each transaction. Only one aspect of the transaction is booked leading to incomplete records at the end of the year.

A double-entry bookkeeping system requires you to enter a double entry for each financial transaction. It shows both aspects of a transaction by following the debit credit system. For every debit, there is a credit and vice versa.

  • Cash-basis Accounting vs. Accrual-basis Accounting:

There are two types of accounting methods used for financial reporting. As the name suggests, cash-basis of accounting revolves around booking journal entries only when a cash transaction occurs. It disregards the entire credit system. For example, it reports sale on cash-receipt basis only, and no credit sales are reported.  

On the contrary, as per the prudent and matching concept of the generally Accepted Accounting Principles (GAAP), journal entries should be booked according to accrual-basis of accounting. Earned income should be booked regardless of it being received in cash, and accrued expenses should be reported regardless of it being paid.

  • Keeping Records:

An essential part of bookkeeping is to document all the evidence of every transaction reported. All invoices, receipts, goods delivery notes, goods received notes, tax invoices and other relevant documents shall be maintained. Documentation is done to provide proof to the auditors about transactions that occurred throughout the year. It may also be requested by tax authorities to verify sales tax and income tax bills.

Conclusion:

Professional bookkeeping is an integral and most basic function of financial accounting and reporting. It not only serves the purpose for preparation of financial statements but also helps in efficient management of money. Hence, success of a business lies in keeping track of cash flow and managing it accordingly.

Read more

 Organize Your Office With These Smart Tips – And Get More Done

Picture modern coworking office in business center with panoramic windows. Generic design computers and generic white furniture contemporary working zone. Open space area. Horizontal.

You may think that you don’t have time to get organized, but truthfully, you don’t have time not to. While it doesn’t do any good to rearrange piles of papers or clear off your desk if you don’t really file or eliminate anything, there are things you can do to establish an orderly and neat office space that increases your productivity and results in less time-wasting.

Rather than set aside day after day for a reorganizing project, do it a little at a time – then consider maintaining your office organization an ongoing project that you work on a little every day. Use these tips to get things off on the right foot:

1. Start with purging. Eliminate everything you don’t want or need. This means de-cluttering shelves of trinkets, emptying bins and wastebaskets and shredding papers you won’t use again. Start with a corner or a cabinet and get rid of everything you haven’t used recently. If it needs repair, give it to someone who can fix it. If it’s something of value that’s no longer needed, donate it to someone who can use it. If you have anything that collects dust but isn’t useful, send it on its way.

2. Redistribute. If you have items in your office that don’t belong there, give them back to their owners or return them to another part of the house or office building. Your office doesn’t need to be cluttered with things that don’t belong there in the first place.

3. Go for a zoned system. Determine what activities happen in each area of your office and make sure things that are used for those tasks are within reach. You might establish your desk as your workspace, your shelves, binders or file cabinets as a reference area and a particular closet, drawer or shelf as the supplies area, for example. Do you need a mailing or shipping center, a designing and creativity area or an entertaining or discussion space?

4. Label what you can. There’s no reason to go overboard, but it helps to label shelves, baskets and drawers with what goes in them. This helps you, as well as others who may have to invade the space while you’re at lunch or away on vacation.

5. Reconsider your filing system. We’re in the digital age, so you may not need to store certain papers at all. You certainly don’t need any duplicate files. File things by action – either physically or online – and create categories like “for a meeting”, “waiting on a response”, and “long-term storage”. Move items you won’t need for a while to a storage area and out of your workspace.

6. Organize your computer desktop too. Don’t let your computer derail your organizational strategy. Eliminate unnecessary files and junk from your desktop and all folders you use regularly. Folders that aren’t used often can be grouped together and hidden away.

7. Clean your desk every evening. De-clutter your desk before you go home, at the very least, using a spray cleaner to remove any spills, fingerprints or dirt so it looks fresh for your next workday. Your morning will be easier to approach if your desk is clean and clear.

Don’t forget to organize drawers, clear away any new piles that accumulate and deal with mail quickly and only once. Filter emails so you don’t see all the junk. Having trouble resolving an issue because you don’t know what needs to be done? Get help or outsource, if possible.

Everything you see, do, or touch in your work area should be properly organized. When you break organizational work into manageable tasks and do a bit every day, you can prevent becoming overwhelmed. You’ll never be finished with getting organized, but you don’t have to be behind in the game either.

Read more