In 2012, an accounting error that went unnoticed for four years cost the Mohegan Sun casino $1.5 million dollars, the Hartford Business Journal reported. While the average small business accounting error won’t be that expensive, you gain more than peace of mind by keeping your books in order. Due to errors, you might might overpay expenses, as the Connecticut casino did. While Mohegan Sun is set to be reimbursed more than $360,000 by the State of Connecticut, it won’t be so easy to get overpayments back from clients. Hedge your bets by watching for these five accounting errors.
1. Not keeping invoices organized – If you need to look through stacks of paperwork to find out whether that contractor paid up, you’re not organized. An invoice tracking procedure ensures you quickly see who owes you money, how much they owe and when the invoice is due. This way, you can follow up on past due invoices faster and keep track of income and expenses. For a low-cost invoice management solution, try either a paper-based file system on your desktop, or the free Invoice Tracker template for Excel.
2. Waiting until tax time to reconcile the books – Many people put off reconciliation because it can be time consuming; however, if you wait until tax time to reconcile the books, you might make miscalculations and not have sufficient time to dig deep into what happened. Set aside a dedicated time each week to reconcile bank statements and check any tax obligations. Come tax season, most of your records will already be organized.
3. Miscalculating tax withholding – For salaried and hourly employees, mistakes in federal income tax, state income tax, Medicare or Social Security withholding can lead to inaccurate tax payments or IRS penalties. Save time and ensure consistent accuracy by using a paycheck calculator, suggests Intuit. Enter the hours worked and the rate (or salaried information) into the template, select the appropriate amount of withholding based on the employee’s tax forms and hit the “Calculate” button.
4. Not keeping business receipts – It’s easy to mistake a business receipt in your wallet for a personal receipt and toss it in the garbage can. However, this makes it challenging to reconcile books and report income and expenses on your taxes. Cultivate a habit of saving every single business receipt by keeping a separate envelope in your car and your bag. Each time you purchase something for business, put the receipt in the special envelope. Periodically clean out the envelope and file the receipts.
5. Misclassified expenses – When you’re in a hurry, it’s easy to quickly select a category for a given expense or skip classifying the expense altogether. However, this can lead to false reporting. If someone isn’t paying close attention to reported expenses, you can inaccurately forecast trends and make poor business decisions. Regularly look over expenses to see whether something looks amiss.