Bookkeeping is complex, tedious, and time-consuming, but an important activity. Every business owner should make bookkeeping a priority. When done correctly, bookkeeping can provide vital business information that business owners can use to make essential business decisions. Bad or sloppy bookkeeping, however, can do more harm than good. It can lead you down the wrong path, and you may make decisions that adversely impact your business.

Here are some bookkeeping mistakes every business owner should watch out for.

Categorizing Income and Expenses Inaccurately

If you delegate bookkeeping tasks to an employee who has no prior experience keeping books and has no or limited knowledge of good bookkeeping practices, they can make mistakes when categorizing business income and expenses.

A common error that amateurs make is categorizing non-business transactions that do not affect profit and loss as income. Unfortunately, this and other mistakes in categorizing income and expenses can affect the accuracy of your books. As a result, they may give you an inaccurate picture of your company’s financial health.

Failing to Classify Employees Properly

Most businesses have two types of employees – full-time workers and independent contractors. Some common mistakes that amateurs make when classifying them are:

  • Failing to consider all aspects of the company-worker relationship.
  • Basing worker classification solely on employment contracts.
  • Considering benefits as the deciding factor.

These and other mistakes when classifying employees can lead to long-term consequences. Misclassification can trigger an audit, and your business may be slapped with a hefty penalty.

Failing to Track Reimbursable Expenses

Many small business owners utilize their funds to meet business expenses. These expenses often go unnoticed. You are flushing money down the toilet if you aren’t tracking reimbursable expenses.

Create a recording system that helps your employees easily and effortlessly track and record reimbursable expenses. By tracking reimbursable expenses, you can differentiate between business and personal funds and identify tax deductions you didn’t know your business was eligible for.

Failing to Deduct or Collect Appropriate Sales Tax

A common bookkeeping mistake is not accounting for and reporting sales tax. The IRS comes down heavily on businesses for not reporting or misreporting sales tax. If you enter data incorrectly, you may get higher than the actual amount generated from sales and can overpay on your taxes.

Not Reconciling Books with Bank Statements

It is important to keep business and personal accounts separate. Make sure your bookkeeper properly reconciles your books with bank statements. Reconciliation helps you detect errors early before they snowball into major issues. When done properly, reconciliation can also help you determine the amount of cash in hand.

Virtual Jeannie Bookkeeping Services offers top-notch small business bookkeeping services near you. Our bookkeepers bring years of experience and specialized knowledge to the table. With their trained eyes, they can notice minor but essential details that amateurs often miss. To make an appointment, call (707) 664-1425.