Common Bookkeeping Mistakes: How to Ensure Your Business is in Safe Hands
Is your bookkeeper really looking after you?
It is surprising how many business owners opt for price over quality when engaging people to look after the heart and soul of their business. Accountants report they spend up to 30% of their time (read 30% of their fees) fixing bookkeeping mistakes. When you engage with unqualified and inexperienced people, you will likely end up paying more in the long run after someone else has come in to fix up the mess left behind.
Most businesses would not know where to begin when reviewing their bookkeeping or their bookkeepers’ work so here’s a few things to look out for.
- Ineffective reconciling
Bank accounts not reconciled for long periods of time
- Duplication
Duplication of supplier of bills which results in double payments! In a similar vein, a list of credits owed to the business that hasn’t been applied. Bookkeepers should at least, monthly, reconcile back to supplier statements. These mistakes would not happen if they follow this process
- Unmonitored Cashflow
Some bookkeepers fail to regularly update bank and credit card reconciliations, payment processing, and more importantly, invoicing of debtors. When done regularly this will update the business owner with their current position and allow plans for contingencies and further business development
- Payroll and superannuation
Many bookkeepers don’t know how to set up the superannuation and entitlement calculations accurately in the accounting software, thus resulting in staff being paid much more than the statutory rate on their ordinary times earnings. As a result, they incorrectly assign accruing annual, personal and long-service leave entitlements – a very expensive mistake!
- Incorrectly separating personal transactions from business transactions
It is crucial that bookkeepers separate these correctly.
- Failing to account for GST correctly
This applies especially when dealing with GST on imports, insurance and motor vehicle registration that have both GST and GST-free components. We have seen bookkeepers who post these transactions incorrectly in the accounting software and then claim incorrect GST credits on the Business Activity Statement (BAS) lodged with the tax office
7. Incorrectly categorising income and expenses
Bookkeepers should review the profit and loss reports at least monthly. This report shows a comparison of incomes and expenses on a month by month basis. Check to see if any expected incomes or expenses are missing. An example would be the monthly rent, if you rent your premises and pay monthly. Check if there is one transaction missing when it should appear in every month. Keep in mind that the figures shown will be those without GST included
8. Tax and compliance obligations
Sometimes bookkeepers are not aware of compliance obligations and lodgement dates. It’s amazing how many we’ve come across who aren’t aware of how and when to complete these forms and lodgements
9. Not filing paperwork
Bookkeepers must file receipts and invoices for goods, services or other business acquisitions purchased by the business. This also applies to invoices or receipts you provide for sales and services rendered by the business. An Accredited Pure Bookkeeping Licensee will create simple filing systems that enable you and anyone else to easily find information when needed
Most accounting software packages have ways for you to review your files for accuracy. Check out our bonus Health Check procedure later in this publication.
When hiring a bookkeeper, always engage the assistance of someone who is qualified and reliable and keep in mind that this service is also tax deductible. Hiring an Accredited Pure Bookkeeping Licensee helps you focus on what you do best and that is growing your business while ensuring your record keeping is up to date.
Remember, maintaining accurate and up-to-date financial records is vital for the success of your small business. By avoiding these common bookkeeping mistakes, you can ensure that your financial management remains accurate, organised, and compliant with Australian regulations.