Although everyone makes mistakes, accounting mistakes usually cannot be reconciled with an apology. In most cases, a simple accounting oversight can cost a business money, time, and even a visit from its IRS representative. Since most businesses make decisions based on previous numbers, an accounting error can send the organization in the wrong direction. Although everyone makes mistakes, it seems that there are certain accounting errors on projects that are much more common than others. The following information highlights some of the most common accounting mistakes and the best ways to fix them.
Lack of Accounting Procedures
No matter the size of the business, there should be a set of documented, formal, and detailed guidelines for managing accounting and bookkeeping duties. The process should be inclusive of every aspect of taking care of the organizations finances, which entails the procedures for accepting payments, making payments, and every incremental step in between.
How to Avoid Lack of Accounting Procedures?
Simply put, the procedures should be in writing and should be practiced every time. By doing so, the chances of a step being missed or something being neglected are greatly reduced. Having a procedure for the way things are done will make it much easier if another employee has to step in for the accounting role.
Data Entry Mistakes
Without a doubt, humans will make mistakes. Whether it is transposing numbers or leaving off a zero, a minor mistake can be the source of major headaches. If this headache is allowed to fester and grow, it can turn into an all out disaster.
How to Avoid Data Entry Mistakes?
The best way to prevent data entry errors from having such an effect is to reconcile the accounts often. All of the accounts should be regularly checked against the bank accounts to ensure accuracy. The accounts that require data entry on a frequent basis should be reviewed well before the month end. As a quality control measure, the person who entered the data shouldn't be the person to reconcile or review the accounts. Simply put, the numbers don't lie and even the smallest discretion should be closely examined.
Budgets are helpful tools to business owners that shows where the business has been and also has implications to where the business is going. Some business owners think that it is possible to monitor spending without having an effective budget in place. This notion is false and extremely hazardous. Without a budget, management cannot control or even notice overspending. On the other hand, if there is no budget in place, management may not recognize that there is a surplus.
How to Avoid Doing Business Without a Budget?
While most people consider a budget to be an elaborate and drawn out document, budgets can be relatively simple. Simply reviewing previous months expenses and deposits is a great way to begin the budget. As time passes, more categories can be added for refinement.
Any organization will have small or petty expenditures, such as buying office supplies or buying lunch for the office. Using cash is a much easier way to pay for these types of petty expenditures. However, just as easy as cash is to spend, it can also cause a lot of problems.
The best method for managing petty cash is to make sure that only a few people have access to the cash. Those who are granted access to the petty cash should be held responsible for ensuing that all receipts are provided for every purchase.