Bookkeeping involves several tasks that need to be completed accurately. Consistency in recording and reconciling all financial transactions is crucial. If you fail to record financial transactions accurately, then it can confuse and may land you in trouble with the ATO. It is essential to notice and address discrepancies as soon as possible. You can also take help from bookkeepers in Melbourne to help keep your business books updated with accurate records.
What are the Signs of Discrepancies in Business Books?
- Suspense account: A suspense account has all your suspicious entries. These records need to be analysed and classified properly. If your bookkeeping records are consistent and accurate, then you will not find any suspense account in your books.
- Differences in your business books and bank statements: You don’t have any funds in the bank account that match the profit shown in the profit and loss account. In your business books, your business is doing well and making a profit, while you are not even reaching your goals if you look at your bank statements.
- Inconsistency in accounts payable and receivable reports: Accounts payable and receivable are crucial aspects of any business, and both play an important role in the amount of liability and assets you have. If these amounts are not updated and calculated properly, you can notice a difference in your vendor payment amounts and your estimated payment amounts. It’s essential to prepare a bank reconciliation statement for accounts payable and receivable processes to avoid future chaos.
- Invoices on the payable report that have been paid: You notice an amount to be paid to your vendor in your payable report that you think you have paid off earlier, but for some reason, it is not waived off from the books. Paying your vendor twice for the same service or product is not the right way to deal with your vendor.
- Your general expense accounts have a huge amount: General expenses are indirect, which means they don’t contribute to the direct service or production. It can be insurance, rent, office supplies, or consulting expenses, and having a huge amount in this account is not a good sign.
What are the reasons behind bookkeeping discrepancies?
The above signs you will notice because of bookkeeping mistakes. Now, let’s check out potential reasons for the above discrepancies:
- Accounting mistakes: Many accounting mistakes can impact financial statements. While most of these mistakes can be identified in the trial balance, a few such mistakes don’t impact the trial balance, for instance, a mistake of commission where you record a credit or debit to the right account but to an inaccurate subsidiary account. It’s essential to correct or avoid these mistakes at the right time. Here are some common accounting mistakes:
- Error of omission
- Mistake in the original entry
- Mistake of duplicate data
- Error of commission
- Error of entry reversal
- Transposition mistakes
- Not separating business and personal accounts: It’s always suggested to separate business bookkeeping from personal bookkeeping. Don’t mix personal accounts and business accounts. If you don’t separate these accounts, then it can increase the risk of future discrepancies. These errors can also make it difficult for a tax accountant to lodge your tax return on time. For accurate and timely tax return lodgment, they need accurate business books. To avoid tax penalties for inaccurate tax return lodgment, you can engage a professional tax accountant. If you prefer finding the ‘best tax accountant near me’, make sure to ask if they have expertise in tax return lodgment.
- Not reconciling bank accounts on time: Account reconciliation is essential for spotting any discrepancies in your account books. If you don’t conduct reconciliation on time, it could result in issues.
- Inaccurate financial transactions: The foundation of effective bookkeeping is consistency. The accounting mistakes can also be reduced if you record financial transactions accurately.
Conclusion
When you run your business, the DIY mentality for bookkeeping might not always be beneficial. It’s suggested to opt for reliable bookkeeping services and let professional bookkeepers handle your business books so you can focus your time on other important business operations.