Bookkeeping mistakes and what to do about them!

WE LOVE fixing data files that are not correct! We do know and accept though that prevention is always better than cure, no matter how much we enjoy it! The cost to you, the client, of fixing bookkeeping errors can be up to five times more expensive than doing it right in the first place.

One of the questions that we get from business owners is ‘Can we leave the errors and start with a clean slate from here on in?’ They know that when they hand us a ‘rescue jobs’ it isn’t a $100 fix! 

The skill required to fix up an incorrect file is far higher than that for maintaining a well-run file. Going back to try to straighten things out is more difficult, and it’s harder to get the right information and you need great detective skills.

Accurate bookkeeping is the way to go!

In business, there is a saying; ‘garbage in, garbage out’. It refers mostly to computer input; if you are entering incorrect data the resulting reports will be incorrect too. This is the case with your Accounting Software!

There are those of us who are obsessive about power cords and extension leads looking tidy and well organised. There are others who really don’t care. Your bookkeeping can be viewed in the same way. If your accounts are well organised and streamlined, your quarter-end returns, and your annual lodgements will be smooth sailing. If on the other hand, they resemble a tangled cord then the job of unravelling that can be tedious, lengthy and complicated. Just as your unorganised and untidy books will be! It is also worth noting that a tangled cord may not actually extend the length of the original cord, which was its main purpose…

The main purpose of accounting data is to evaluate the business’s past, current and future financial position. It measures performance so that a plan can be made for the future. Good accounting ensures your business is compliant. This includes business legislation such as Taxation, GST, Fair Work and Corporations laws.

Many business owners are hesitant about contracting a bookkeeper because they do not see their value. When you look at the objectives of your accounts and how a bookkeeper helps you achieve that, it is simple math! Doing it yourself or using a cheap option can cost you money in the end and using a great bookkeeper can help you save.

Inaccurate bookkeeping can result in over or underpaid wages. Taxes and other compliance can be overlooked leaving you potentially in trouble. This can result in hefty fines, expensive audits, legal issues and in extreme cases imprisonment. Plus, a whole load of unnecessary stress that goes along with audits and investigations.

You can choose to ‘ignore’ the kinks in your extension cord. But you can also see that ignoring ‘small errors’ or poor-quality accounting data, is unwise, and a huge risk to the business. It won’t save you money and could cost you your reputation and your business!

There are Some Signs That Show Your Xero file contains Common Bookkeeping Mistakes

If you ignore these warning signs you are putting the future of your business in danger. You may be relying on incorrect statistics and reports to make key, business decisions. If you are making plans for the future you need to know that your reports are accurate. You could also be missing out on tax deductions that you are entitled to.

  • Payables and receivables reports don’t match what you think you actually owe. This is a huge sign that something is wrong and can take a lot of hours working from the last time they were right…
  • The profit & loss statement shows a profit, but you don’t have money in the bank. Concerning right? That isn’t right and you really need to know what has happened!
  • P&L shows large amounts in an account called “General expenses”. The ATO is really cracking down on General Expenses. We don’t allow any of our clients to allocate spends to ‘General Expenses’. This is the one area that the ATO is really keeping an eye on. It indicates lazy bookkeeping and incorrect allocation.
  • An account called Suspense is showing on your P&L or Balance sheet
  • On your balance sheet, there are accounts with negative (bracketed) balances (apart from Accumulated Depreciation and a few others). Your balance sheet accounts should be positive (non bracketed) or at least the majority of them should!
  • Payroll clearing, undeposited funds or electronic clearing accounts aren’t $0.

Once you have checked these areas, note down what you see. And then engage an experienced Registered BAS Agent to correct the errors, or to supervise the process. Some will give you training too to avoid this scenario reoccurring. Having your Xero file set up correctly should avoid some of the errors but may not eliminate them all.

Need help fixing some bookkeeping mistakes?

If you need help working out the health of your accounts, or assistance fixing your bookkeeping mistakes please get in touch. Liz Peacock and the team at Keeping Numbers are all very experienced with years of industry experience under their belts.

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