Accounting is the practice of recording financial transactions related to businesses. It also involves measuring, sharing, and processing financial information. There are several benefits of accounting. It helps business owners keep track of their assets, liabilities, income, and expenses. Business owners use accounting information to make key business decisions.

It is not uncommon for business owners to make accounting mistakes. Even a seemingly innocuous accounting mistake can hurt your business and lead to compliance issues.

We have compiled a list of some common accounting mistakes that small business owners make. Take a look.

Failure to Reconcile Accounts with Books

The purpose of reconciling a business’s accounts with its books is to ensure that the figures are correct and in agreement. Reconciliation can help identify fraudulent activity. It prevents mistakes and can help with receivables tracking. When reconciliation is not done, bank accounts and books can fall out of sync. Reconciliations should be performed a few days after the end of every month to check the accuracy of financial statements.

Misclassifying Employees

Employee classification mistakes can lead to lawsuits and penalties. When classifying employees, consider their job duties, how they are paid, and their relationship with your company.

The employees who work at least eight hours a day, five days a week, draw a salary, and receive health benefits are your full-time employees. Part-time employees are employees who work less than 40 hours a week and are usually paid hourly. Under normal circumstances, they are not eligible for benefits. If a person sets their own schedule, gets paid by the project or by the hour, they should be classified as an independent contractor.

Once you have classified your employees, hand out W-4s to full-time employees and W-9s to independent contractors. If you need help distinguishing between part-time employees, temps, full-time employees, and contractors, contact an accounting service in Santa Rosa for help.

Commingling Personal and Business Finances

Many small business owners make the mistake of mixing personal and business finances. This can lead to compliance issues. Business owners who fail to keep personal and business finances separate may face difficulty securing a loan or a line of credit, as lenders want a complete snapshot of a business’s finances when making lending decisions.

It’s important that you have separate business and personal accounts. Also, get a separate credit card for your business.

Not Planning For Tax Season

Businesses that fail to plan properly for tax season often make tax filing mistakes. As a result, they may end up paying more and miss out on tax exemptions. Follow these tips to prepare your business for tax season:

  • Track receipts and expenses throughout the year.
  • Stay up to date with tax projections throughout the year.
  • Analyze cash flow and check tax liabilities at the end of every month.
  • Set aside cash for taxes.
  • Gather and organize all the required documents.

Virtual Jeannie Bookkeeping Services is a trusted bookkeeping firm in Santa Rosa. Our bookkeeping experts have years of experience helping businesses build bulletproof bookkeeping systems. To talk to one of them, call 707-664-1425.