Bookkeeping is the backbone of any successful business. Accurate and efficient bookkeeping helps in maintaining financial health, making informed decisions, and ensuring compliance with the Canada Revenue Agency. However, even the most well-intentioned business owners can make common bookkeeping mistakes that can lead to financial chaos. In this blog post, we will explore the top 5 common bookkeeping mistakes and provide insights on how to avoid them.
1) Neglecting Monthly Reconciliation
Your business credit card and bank accounts should be reconciled on a monthly basis to ensure financial transactions match the bank statements. Completing reconciliations monthly ensures that any errors, discrepancies or fraudulent activities are reported and rectified immediately.
2) Mixing Business and Personal Transactions
Our first piece of advice to our clients is to never mix business and personal expenses. This makes it challenging to accurately track business expenses, which may lead to tax complications in the event of an audit. Businesses should open separate business and credit card accounts.
3) Not Keeping Receipts and Documentation
Without providing proper receipts and documentation, it will be very difficult to back up claims to expenses and deductions. This can lead to disputes and adjustments with the Canada Revenue Agency. Have a tracking system in place for these important documents. It can even be digitally stored. The important thing is that it is readily accessible.
4) Incorrectly Categorizing Transactions
Transactions that are miscategorized will lead to inaccurate financial reports. This may lead to misguided decisions and tax liabilities. It is important to set up the chart of accounts accurately right from the very start.
5) Disregarding Financial Reports
Financial reports like the balance sheet and income statements have a lot to say about the financial health of the business. It is important to understand how to read financial reports as these reports identify trends and help the business owner make informed decisions. Reports should be generated and reviewed on a monthly and quarterly basis.
When it comes to bookkeeping, avoiding common errors will go a long way to providing meaningful information about the financial health of the business. IFC can help with your bookkeeping needs. Contact us to learn how we can help.
