7 Common Bookkeeping Mistakes to Avoid in Your Business
Making mistakes in your business bookkeeping can distort your accounts and lead to inaccurate reports.
Here are some common bookkeeping mistakes to avoid if you want to prevent this from happening!
1. Entering transactions directly from bank feeds
If you enter items into your system directly from your bank feeds instead of bills or receipts, you risk making coding and GST errors.
An example is your motor vehicle registration payment – which comprises a mix of insurance (subject to 10% GST), registration fee (not subject to GST) and stamp duty (no GST). This shows how entering a payment directly from your bank feed could lead to some serious inaccuracies.
2. Failing to separate business and personal items
Purchases made for personal reasons should always be kept separate from your business.
The ideal way to do this is by always using separate accounts or cards for personal and business purchases. However, if on the odd occasion you do purchase something personal using your business account (e.g. you fill up your work vehicle and buy some snacks on the same card), then it’s important to clearly mark this on your receipt before it gets entered into your accounting system.
3. Failing to match bank feeds to bank statements
You should not just assume your bank feeds on your accounting software system are correct. Wonderful as bank feeds are, there are occasions when there can be transactions that are missing, duplicated, or delayed.
This means you should always check your bank feeds against your actual bank statement to make sure every item is recorded. Any missing items can be added manually, while duplicate items can be deleted.
4. Not reconciling control and clearing accounts
Control accounts (e.g. for creditors, debtors, and stock) reflect the sum total of multiple subsidiary accounts, so they should be regularly reconciled to ensure accuracy.
Clearing accounts (e.g. payroll clearing) are another type of account that should be reconciled – as these are temporary holding accounts which should always end up with a zero balance. A suspense account is a classic example of this. Sometimes businesses will put items in the suspense account when they don’t know what else to do with them and then leave them there – which can lead to some compounding errors!
5. Mixing up assets and expenses
While most business purchases are likely to be deductible expenses, some could also be capital purchases. Getting this wrong can distort your financial statements.
For example, if you record a capital purchase as an expense, it will incorrectly show up on your Profit & Loss report, and your balance sheet will also be distorted.
6. GST errors
It can be easy to automatically record 10% GST on every transaction. However, there are many items that are not subject to GST – such as fresh food, council rates, some bank fees, rents, donations, gift cards, and many others. There are also some complexities around imports, second-hand goods, and insurance bills.
This makes it important to ensure that every transaction is entered accurately in terms of GST codes.
7. Claiming all ‘entertainment’ as a business expense
There are some strict ATO rules around what is and isn’t considered tax deductible entertainment. This means that while your office party could be a deductible expense, taking your workers out for a night on the town may not be.
So, before claiming items under ‘entertainment’, it’s important your scenario fits the criteria!