Getting the bookkeeping basics right!
Period end reporting is here and every time there are a few common errors that we find, I just wanted to share them with you. I reckon that my team and I must add an extra 20 hours onto our billing because of three very simple mistakes. Want to learn how to save some money on the bill your bookkeeper sends you for your BAS Lodgement work? Read on…
There is one more common than any other and it is down to a lack of knowledge. It is the bane of every bookkeeper’s life and its name? Incorrect coding and transaction entry errors. I know that these are easy mistakes to make but they can also be very costly. If your bookkeeper spots them you have the cost of putting them right, and that can take hours! If they don’t spot them your books will be wrong. You may be claiming stuff you shouldn’t be and you can land yourself in hot water.
A moment’s distraction or a slip of the fingers and the entry goes against the wrong code. You might end up putting it against the wrong account.
Why is mistake money such a huge hassle?
If you are a bookkeeper, account coding errors and duplicate bills entered by you all count as mistake money. The same can be said for invoices and contact records or incorrect GST payments and claims. Australian Business Register discrepancies with your contacts and trading with cancelled business are all mistakes that cost money!
Mistake money causes financial risks for small businesses.
You could argue depending on the value of the transaction, a mistake here and there may not be of great concern. No matter how ‘here and there’ it should be of concern to you! As a professional bookkeeper, you have an obligation to ensure that the information being submitted it correct! If mistakes reoccur and are never discovered, or the result of fraud well, that’s extremely worrying.
The importance of coding correctly
Every company’s business’ chart of accounts includes account types and codes. These codes are used to record, classify and group transactions. Reports are then produced from this information. These reports are then an aid to help make business decisions.
Different types of accounts are treated differently at the end of the financial year. When a transaction is allocated to the wrong account, you could miss out on maximising tax deductions. You might lose out on taking advantage of depreciation benefits. Your reports will be inaccurate so any decisions based on these will be wrong. There are other implications too. You may end up paying too much to the tax office or too little. Then you risk being penalised.
Your business will have many different codes. Some of them will have similar names. Examples would be ‘Office Expenses’ and ‘Office Equipment’ or ‘Travel–National’ and ‘Travel-International’. As a business owner and not a bookkeeper, you may have trouble remembering what gets allocated to which code. We know that is a common and reoccurring issue.
A lot of small business owners complete their bookkeeping at night. Some on weekends or squeezed between other jobs that need doing. Perhaps you have a staff member or two that take care of the books. Do they step in and out of the process at different times? If you are a bookkeeper, you will have many clients. That means hundreds of entries to reconcile, and a lot of accounts and codes to manage.
It’s unsurprising that the wrong code can and do get selected.
It can be taxing
Bookkeeping is a complicated but necessary task. Staying on top of your books effectively takes time, effort, attention and whole lot of expertise.
There you are with a business that is booming. You decide to invest in the purchase of new manufacturing equipment that is worth $300,000. It’s an investment in assets that will give returns for many years to come. You are able to claim the depreciation as a tax deduction. That saves you thousands on current and future tax returns. If you enter it against the wrong accounting code and don’t realise, you may miss out on those tax savings.
Another example would be where you have coded a transaction against the account named ‘Office Expenses’. It should be classified as an expense. This transaction should be coded to the account named ‘Office Equipment’ and classified as an asset.
Sometimes these may not be honest mistakes? As a business owner, you should know everything happening in your accounts. As a bookkeeper, you should be confident that every transaction is legitimate?
Unusual account coding can be a sign of attempted fraud.
But whether it is an honest mistake or fraud, the result is exactly the same. Money lost that the business cannot afford to lose!
You’re only human, it’s hard to get things right every time. After all who has the time to check and re-check everything? It is taxing but doesn’t have to be!
Peace of mind and have more trust in the numbers
Incorrect account allocations lead to inaccurate records. That results in incorrect reports and statements. You then make business decisions. Based on inaccurate information, these could have a significant financial impact on your business.
Accurate records will make tax time more straightforward. Fewer corrections and lower bills from your accountant! You’ll also be more confident in your expense and depreciation claims. Your compliance requirements will also be met.
All it takes is some proper training. Couple this with the willingness to accept that what has been happening isn’t good enough! Once you have done that, you are ready to learn how to do it right or contract a bookkeeper that will do it for you!
If you would like someone to one training, then please get in touch with Liz. She will help you understand how and why correct coding and allocation is essential. That can either happen in person or on zoom. That means that no matter where you are in Australia, you can take advantage of Liz’s’ years of experience. She is acknowledged as a shining light in the bookkeeping and accounting world.
If you prefer, Liz and the team at Keeping Numbers can take over the management of your books. Between them, they have over 50 years of experience. Their passion for numbers means that they are unequalled!