How to Resolve Common QuickBooks and Bookkeeping Mistakes

by Mitesh Singhal Singhal Industries Private Limited

Accounting errors can be costly; if your income is overstated and you are audited, you will almost certainly face large penalties and interest. In this article, we'll go through some of the most common QuickBooks and bookkeeping errors we've seen, as well as how to correct them.

Mistake No. 1: Not valuing bookkeeping:

Maintaining accurate accounting records for your company is not glamorous, and reconciling bank and credit card transactions and classifying data may not be your idea of fun. It's vital to remember, however, that proper bookkeeping is the cornerstone for running a successful and efficient firm. You won't be able to do the following without adequate accounting records:

· Recognize your company's cash flow requirements.

· See if your company is on track to meet its profit targets.

· Prepare for tax season by making estimated tax payments based on your anticipated earnings.

· Before tax season, employ tax reduction methods to ensure that you pay the least amount of taxes legally possible.

We look at some of the primary advantages of outsourcing your business bookkeeping in our article, Bookkeeping Services for Small Businesses.

What to do about it: Consider bookkeeping to be equally as vital as sales when it comes to your business.

Mistake 2: Failing to outsource your bookkeeping when it is required:

When you initially establish a company, you may be tempted to do your own bookkeeping because, after all, how difficult can it be? With QuickBooks' software automation, anyone can handle their own books, according to the company. The problem, as we addressed in this article, is that you are not an accountant and may not have a complete understanding of the basic accounting rules required to keep your business's books in order. This can lead to costly blunders; you may end up spending more for an accountant to correct your accounting problems than you would for someone to keep track of your books on a regular basis.

What to do about it: Know your limitations and don't try to be an accountant if you aren't one. Consider hiring an accountant who can help you with more than just your day-to-day bookkeeping. This article explains the advantages of working with a Trusted Advisor.

Mistake 3: Relying on Bank Feeds:

One of the most significant improvements in QuickBooks is the ease with which you can set up a bank feed to automatically integrate all bank transactions into your QuickBooks business accounts. Bank feeds are convenient, but they aren't always reliable. There are occasions when we find duplications in imported transactions, or when transactions are completely missing. This can wreak havoc on your finances and quickly escalate into a cascade of problems that misrepresent your financial records.

What to do about it: Always compare the information imported from QuickBooks to your business account balances. There is a discrepancy that must be identified if the two do not match.

Mistake 4: Failure to update records on a daily basis:

We talked about how important it is to update accounting records on a daily basis in this article. If you update your data on a monthly or even occasional basis, you are unable to efficiently run your firm. You won't be able to grasp your cash flow demands if your records aren't updated on a regular basis, and you could end up with a significant cash gap.

How to repair it: Set up a system where you update your accounting records on a daily basis. This can be difficult, especially if you have a lot of other things to do in your business. As a result, think about outsourcing your bookkeeping needs.

Mistake 5: Failure to have a strong Chart of Accounts:

Consider the Chart of Accounts to be the backbone of your business's bookkeeping; without one, you risk wrongly categorizing transactions, which could lead to costly blunders.

How to solve it: Instead of using QuickBooks' default Chart of Accounts, research how you want to capture and categories transactions for your specific company. If you're not sure how to put up a Chart of Accounts, try hiring an accountant to help you with the process.

Mistake 6: Creating Reports on an Accrual Basis Instead of a Cash Basis:

The Cash-Basis Method is used by most organizations to present financial data, in which revenue and expenses are recorded as they are received and paid. The Accrual Method of Accounting, on the other hand, records revenue and expenses as they occur. With a single click of a button, QuickBooks may change the financial reports from cash to accrual. If you disclose financial data incorrectly, you risk overstating or understating your entire tax liability, which may be a very expensive problem to fix.

How to repair it: Double-check that all QuickBooks reports reflect the right method, either Cash or Accrual. If QuickBooks generates reports in Accrual mode automatically, make sure to manually switch the reports to Cash mode before reporting the data to the IRS.

Mistake 7:Recording Principal Loan Payments as an Expense

When you get a loan for your firm, depending on the loan type, you should record the original loan sum as a short or long term liability on the Balance Sheet. When making monthly payments to the lender, each payment should be divided into two parts: interest and principle.

What to do about it: Interest payments on a loan should only be recorded as a business expense on the Income Statement; principal loan amount repayments should reduce the loan balance and be recorded on the Balance Sheet.

You are not alone if you are feeling overwhelmed. Consider working with an accountant to help you optimize and manage your business's day-to-day bookkeeping needs.