When it comes to running a small business, your accounting books are vitally important. The tiniest of mistakes can throw everything off the rails and impede your business's growth. Mistakes aren't uncommon, though, especially for start-ups. So, to help your new business, here are twp common accounting mistakes that you will want to try to avoid:
1. Failing to Take Care of Accounts Receivable
The best part of operating your business is receiving money, but the worst part is tracking the money that you receive. When you receive a payment from your customer, you should mark that the customer's invoice has been paid. Unfortunately, there are only so many hours in the day and those invoices are hardly ever marked as paid the same day that the money is received.
However, if you don't mark paid invoices and track the money that is received from customers, it will leave you with a lot of consequences to deal with, such as overpaying the IRS and AR reports that don't make sense. Therefore, it is crucial that you take the time each week or each month to apply your customer payments to customer invoices to keep your accounting books up to date and in order.
2. Forgetting to Record Cash Expenses
Running a business costs money. At the end of the year (a.k.a. tax time), those expenses can be deducted, which allows you to see how your business performed overall. It is relatively easy to keep track of expenses from your bank account and credit cards, but it can be easy to forget about any expenses that you paid for with cash. In many cases, you may not have recorded these expenses in your books throughout the year, which means you could overstate your business income for the entire year.
To avoid something like this happening to you, it is important that you figure out a way to track any expenses that you pay for with cash. You will want to make sure that you request receipts for all cash expenditures. As soon as you return to the office, you will want to record the expense immediately or store it into a notebook that you will use at the end of the week or month to log all expenses.
If you're just getting a business up and running, it may be a good idea to spend the extra money and speak to an accountant about what you can do to keep the financial side of your business on track. Get started by contacting a business like Hy Appelbaum CPA.