Running a small business is not easy. It takes a great deal of time and effort to be successful. This can make it difficult to find extra time to take care of your company books. While it can be tough and complicated, it is crucial to keep these in order. The following are 7 tips to make sure you do not make common accounting mistakes when caring for your business finances.
Do not mix in personal expenses
There are several ways that combining personal costs and business costs can harm a business. First of all, the financial statements will not accurately reflect the business’ performance. In addition to this, personal expenses are not good for a business’ available cash. Third, the Internal Revenue Service (IRS) often denies legitimate businesses expenses as tax deductions if they believe that personal expenses are intertwined.
Keep your books current
When you fall behind on your books, it can create a domino effect. If you fail to stay on top of doing your books, it can be more difficult to get back on track. Certain entries can become more complicated if you cannot recall transactions that happened months ago. It is important to have a goal to enter all transactions by the end of each week.
Perform monthly bank reconciliations
By receiving monthly bank statements, you can ensure that they are put into your books within a week or so. Bank reconciliations can almost always catch any errors in your books. Delaying these reconciliations can increase your chances of missing an error made in your books.
Do not enter capital assets as expenses
Capital assets provide long-term value. Because of this, they are entered on a balance sheet and depreciate over the years. If you misclassify a capital asset as an expense, it can negatively impact your net income for that period. This can be avoided by reviewing any large purchases and expense accounts.
Do not mishandle sales tax
While many businesses book sales tax as they receive revenue, this is not correct. Any sales tax you receive should be entered as a liability until sending it to the proper tax authority. Any sales tax you pay should be booked as an expense.
Keep proper documentation
As a business, it is important to keep proper documentation. This includes invoices, receipts, adjustments, journal entries, contracts, timesheets, shipping documents, and more.
Do not spend too much time on your books
It is important to not stress accounting rules and tax laws. It can be beneficial to partner with an expert to handle your books and consult you for your expertise when necessary.
Werdann DeVito LLC is an experienced Certified Public Accountant firm serving clients throughout New Jersey with all of their financial needs. If you need quality assistance with accounting, tax, or consulting services, contact Werdann DeVito LLC today.