Many small business owners will make accounting mistakes from time to time. This is only natural. However, too many mistakes can cause major financial problems for the company. Some of the most common accounting mistakes that business owners do is on their business balance sheets. Mark Dicus & Company will share what mistakes business owners need to watch for and how to prevent them.
Omitting Transactions on the Balance Sheet
One of the biggest balance sheet mistakes is in omitting or excluding all transactions. When forgetting or leaving out transactions the company makes, this mistake is an easy one to correct. When forgetting to record petty cash, supplies, inventory, or other expenses, it can greatly affect the balance sheets. To prevent this all too common mistake, make reminders in a handy place for each transaction or immediately catalog the transaction as soon as it was made.
Errors in Recording Transactions
Another common accounting mistake is incorrectly recording transactions or inverting numbers on a balance sheet. When recording a transaction improperly on a balance sheet this is referred to as transposition errors. For example, on some record balance sheets the business owner may write down 25 instead of 52. This is considered a transposition error. Again, these errors can be easily caught and fixed. However, correcting transposition errors takes time and resources. To avoid this all too common mistake make sure to double check the balance sheet and each recorded transaction to make sure they are correct. You can also have an employee cross check your balances sheets.
Change in Inventory Mistake
Forgetting to record any changes in inventory is another Balance Sheet Mistake. It is easy to forget the changes in inventory and these changes are often not updated or tallied. Inventory is huge for a number of different types of businesses. Not updating the balance sheet with the changes in the inventory will have later resulting problems. To prevent this common error make sure you have a report of any changes in the inventory sent directly to you or your accounting firm. This will ensure that even the smallest change is accounted for.
Not Classifying Data Properly on Balance Sheet
When recording transactions on the balance sheet, each transaction must be properly classified. There are two major types of transaction classifications; one is assets and the second is liability. Assets are physical or non-physical property that adds value to the company or business. Liabilities are debts the company owes such as payments owed to other companies, employee payments, and vendors. It is important on a balance sheet to know what each transaction is and must be recorded properly. Make sure to properly label each transaction with the proper classification.
Prevent Accounting Errors & Need for Correction
To ensure your balance sheets are correct it often pays to have a professional accounting service to help manage your balance sheets and other accounting affairs. A professional service has not only training but steps they take to ensure balance sheets are correct. Accounting services will first conduct a trial balance before they make a final balance sheet. They then review a balance sheet and transaction report to ensure accuracy. They will look at and pinpoint any errors they find and keep all financial documents properly organized.