Common Bookkeeping Mistakes That Weigh Down On Business Profits

Bookkeeping serves as a foundation for sound financial decision making and planning and therefore it is essential that financial records are kept up-to-date. Some businesses procrastinate the mundane process of maintaining financial records because it involves a lot of time and effort. When this happens, it is better to find a bookkeeper so that you can get more time to concentrate on core business activities. Some common bookkeeping mistakes that can be avoided by paying more attention are as follows:

Inaccurate Record Keeping

Business managers can lose important receipts or ignore small expenses that seem insignificant to them and this can hinder proper maintenance of records. When its time to file tax returns or close accounts at the end of the financial year, it results in a loss of both time and money. In case of an IRS audit, you will not have the necessary documentation required for proper tax measures and this can result in fines and other expenditures when dealing with the auditor.

Wrong Categorization of Expenditures

For those of you who are not aware of bookkeeping methods and procedures, it easy to feed the wrong amounts into wrong accounts. When this happens, it is likely that income and expense accounts have the wrong balances and this could result in overvalued or undervalued profits and tax payments.

Mismanaging Liabilities and Receivables

Account receivables and payables must be properly recognized and dealt with otherwise they can result in inaccurate profit figures that depict poor cash flow planning. Separate accounts should be created for credit sales and prepaid expenses for proper tallying of accounts at closing.

Transactions Recorded In the Wrong Period

Sometimes lack of bookkeeping experience results in current transactions entered into previous reporting periods after financial statements have been generated. The resulting errors can complicate reconciliations and create a false picture of the financial position of a business.

Ignoring Bank Reconciliations

When you are engaged in a business, it is essential that personal accounts and bank accounts are kept separate to avoid confusions.  Moreover, financial records should be updated and reconciled with any external records such as bank statements on a regular basis. If this is not done, it results in errors and chances of fraudulent practices rise.

Not Keeping Data Backups

Businesses rely heavily on technology in today’s world and with software and privacy issues on the rise, it is essential that backup is maintained of all the important information related to the business. System failures or crashes can result in a loss of important information which can be deleterious to your business’s health. It is better to be prepared for such unfortunate circumstances by keeping updated backups on an offsite location.

Keeping Employee Categories Separate

With increased dependence on contractual employees, it is essential that separate records are maintained for different employee categories.  With accurate classifications and cost allocations, workers’ compensation, insurance payments and tax payments will not be wrongly computed.

Petty Cash Mismanagement

All businesses have small amounts of cash that have no ‘attached’ explanations. This petty cash can be properly managed when there is a system in place to keep track of cash transactions.

Losing track of Reimbursable Expenses

Sometimes, business owners pay for certain expenses out of their personal funds but fail to record them because of a lack of such a system. This can accumulate to profit losses and tax deductions that would otherwise have not happened.  With a proper company policy to keep track of legitimate business expense claims, these expense claims can be reimbursed.

Find a bookkeeper who can prevent such mistakes so that you can effectively and successfully manage your business.

 

Anthony Azevedo, CPA is the managing member of EZCFO a bookkeeping company specializing in human resource, payroll, and employer solutions.

Why Look for a 401k Investment Advice?

Almost all people want to be secured when they retire from work. The 401k is one vehicle that can help you to be financially secure when you retire. This retirement savings plan is part of the US government program for employees to have savings that is tax deferred and could invest earnings in saving. The money or contribution are sponsored by employers wherein the workers choose to have a portion of their salary paid into their individual 401k account where it can grow until retirement.

The 401k retirement plan has a lot of good things to offer you. If you plan to invest, here is a 401k investment advice for you. You will have a few significant reasons why you must have this kind of retirement account. One is that you are going to have a significant tax advantage because the dividend, interest, and capital gains are not taxed until you cash out 401k. Another is, this account is flexible for investment for the reason that employees can choose from a range of choices as to how their assets are invested. If you are young, a 401k investment advice for you is to start your account right away because time is in your side. The longer the years you have your account, the bigger the investment you can get if you had not cash out 401k.

If there are benefits, surely there will be drawbacks as well, and the 401k is not exempted here. There are few things that one will always put in mind in order to avoid the consequences of these disadvantages. One rule is that the investor must not cash out 401k early or before he is 59 ½ in order to avoid penalties. These fees and penalties are very severe because it will include tax money plus the interest, and the worst thing that might happen is the forfeiture of your 401k account if not paid back. So, if you break this rule, you will suffer from penalties and fees that can ruin your investment expectation.

Therefore, it is important to know some 401k investment advice to help you in managing your 401k account. If you have any problem regarding how to work with your account, you can ask help from experts like a financial adviser. Doing well with your account today would be a huge money tomorrow.