No one is perfect – although it doesn’t hurt to keep trying! As tax season begins to gather momentum, the staff at Davis & Hodgdon Associates identifies some of the most common bookkeeping errors made by even the best of bookkeepers.
1. The posting of journal entries in the wrong year is one of the most common errors seen and often proves to be the most time-consuming and costly to fix. Example: Posting a journal entry that is in the current period to a prior period after the prior period tax return/financial statement has been completed and the prior books closed. This will cause the prior period net income to change, making the prior year retained earnings off.
2. Forgetting to track reimbursable expenses. All business related expenses should be recorded in a timely fashion to ensure that they are not missed.
3. Recording owner’s draw as wages. Owners draws from the business that were not processed through payroll are Not wages but owner’s distributions. Wages expense is for amounts paid through payroll, where payroll taxes were collected and amounts will be reported on the W2 at year end.
4. Not breaking out sales tax. A common mistake within retail businesses is not separately sales tax from the total sales. The result is an inflated total sales amount.
5. Negative Accounts Payable. This is usually caused by clients entering the bill payment checks date with an earlier date than the bill date. To prevent this, make sure the bill date is earlier than the bill payment date. This is especially important at year end.
6. Negative Accounts Receivable. This is usually caused by Receiving payments from clients but not actually invoicing the clients. Again, every client should be invoiced first, before receiving payments.
7. Cleared checks in current reconciliation with future dates. Client enters the wrong date on a check that cleared in a past date. Make sure to review reconciliation’s cleared items section and look for future dated checks or deposits. Example: if you are reconciling your 12/31/2014 bank account, it should not have any checks or deposits cleared with a 2015 date.
Interested in outsourcing your bookkeeping tasks? Visit http://www.dh-cpa.com/bookkeeping.html
Need help straightening out your books? Davis and Hodgdon Associates CPAs has been assiting nonprofits, individuals and businesses with tax and accounting services in the Burlington Vermont Metro area for more than 20 years. If you have any questions or concerns please feel free to call 802.878.1963 or email [email protected].