Most Commom Bookkeeping Mistakes

1 – Bookkeeping Knowledge

Why choose Bookkeeping Knowledge as the first common Bookkeeping mistake? Eighty percent of small businesses have their books done by non-qualified persons. It’s true that some might be doing a great job, but most are mere data-entry clerks that do not have the knowledge to make accounting decisions. The condition of a company’s books will reflect this. It is understandable in this unstable economic environment to try and keep costs to a minimum, however not having a properly trained Bookkeeper might ensure the company loses money. Poor bookkeeping records lead to increased Accounting fees, Government penalties, non-deduction of expenses, and mess of the AR which leads to higher client delinquency. A Professional Bookkeeper will be proficient in assisting you to establish the best procedures for your business. They will help you keep safe and sound records of your operations and identify areas where your records need to be improved. It will also reduce your accounting fees.

2 – Not having all entries properly backed up

Some business owners believe it is not a necessity to have the paper record of Credit Card or Bank account payments. It is thought Credit Card and Bank Statements are enough to expense. This is wrong. You should have proper paper backup for all transactions including small ones. If there are a documents missing, the statements can then be used to expense those few transactions. Always keep in mind that if you get audited all of those expenses may be disqualified and your income taxes might be adjusted.

3 – Mixing Business/Personal

There must be a thick line separating personal expenses, from business expenses. The Bookkeeper must have a clear picture of which is which. Business resources should not be used for personal means. You should be able to track all personal expenses aside from business. And yes, it’s true you cannot deduct those groceries for the Family Christmas party. What about having a Credit Card and Bank Account for business use only? This easy separation will guarantee a smoother running organization. However there are some expenses that might have to be divided into portions of personal and business,. an example of such a situation would be the utilities of a home office; Do not forget to tell your Bookkeeper about these expenses.

4 – Not reconciling

I have witnessed some Bookkeepers working years without ever making a Bank or Credit Card reconciliation, or keeping a system of “almost reconciled” with complicated and disturbing spreadsheets. Checking that Bank and Credit Card statements are reconciled properly every month will minimize errors and identify potential issues. I make a point to reconcile every month and it has proven to be very beneficial in discovering errors. I have more than once exposed cheques to be compensated twice on different dates.

5 – GST / HST mistakes I agree that the HST introduction and the different Sale Tax spectrum for the Provinces do make it more difficult. If you’re not sure what tax to apply to a specific supply, just give your Bookkeeper or Accountant a call. (Copied From CRA site) The GST/HST rates are as follows:

	On or after July 1, 2010	On or after January 1, 2008, and before July 1, 2010	Before January 1, 2008, and after June 30, 2006	On or after April 1, 1997, and before July 1, 2006	Before April 1, 1997
Alberta	5%	5%	6%	7%	7%
British Columbia	12%	5%	6%	7%	7%
Manitoba	5%	5%	6%	7%	7%
New Brunswick	13%	13%	14%	15%	7%
Newfoundland and Labrador	13%	13%	14%	15%	7%
Northwest Territories	5%	5%	6%	7%	7%
Nova Scotia	15%*	13%	14%	15%	7%
Nunavut	5%	5%	6%	7%	7%
Ontario	13%	5%	6%	7%	7%
Prince Edward Island	5%	5%	6%	7%	7%
Saskatchewan	5%	5%	6%	7%	7%
Yukon	5%	5%	6%	7%	7%

The HST breakdown:

1. The HST rate of 12% includes the 5% federal part and 7% provincial part.

2. The HST rate of 13% includes the 5% federal part and 8% provincial part.

3. The HST rate of 15%* includes the 5% federal part and 10% provincial part.

(As of July 1, 2010) 4. The HST rate of 14% includes the 6% federal part and 8% provincial part.

5. The HST rate of 15% includes the 7% federal part and 8% provincial part.

Other GST/HST common error is to capture GST/HST on all amounts paid without confrontation with the receipts. Not all products have GST/HST at same rate and some are exempt. Some you can only claim a portion of the paid tax. Only confronting the amounts with receipts allows your bookkeeper to do a good job. A less trained bookkeeper might also capture GST/HST erroneously – one of the most common errors of non-qualified professionals.

6 – Not tailoring you Chart of Accounts

The accounting system is intended to work for the business owner, to empower them with needed information in a way they understand. When I have a new client, often the first thing that I hear is that they know nothing about their books, how can you not know a thing about your books? A couple months of working together I ensure they can comprehend the ins and outs of their books. Reporting and ensuring client understands what is sent to him is crucial to build personalized solutions that helps see the books as a mirror of their business operations. Creating Classes / Subclasses and Jobs might help a client understand and improve the operations. That is the essence of bookkeeping. For my business I have coined the phrase “building strategies for small business,” which strongly represents my bookkeeping values.

7 – Bad Petty cash management

Most businesses operate with a small amount of petty cash. Not keeping track of these expenses is a common mistake. Over time a petty cash account can build a huge amount of cash and if there are no receipts or a close tracking of this account it might end up to be cleared against Shareholders/Owners which will inevitably represents the lost opportunity to expense it.

8 – Neglecting Reimbursable Expenses tracking

Businesses often pay for expenses on their clients behalf. Keeping a clear record of these will enable you to reimburse your company for these expenses. A trained Bookkeeper will be able to keep track of these in the accounting system and report to you at any time even after they have been charged to the client and also permit you to know your profit in each of these operations. Some owners also pay for business expenses out of their pocket this should be tracked in a similar way to make sure you receive the money you disbursed to the business.