Common bookkeeping mistakes

Man keeping track of his books

Bookkeeping is the organization of your entity’s financials to create a set of financial statements to give a business owner an accurate idea of a company’s health. Without knowing the current status of your company’s financial condition, how can a business owner run their business correctly?

Below are a few commonly made mistakes and tips when managing a set of books.

Different types of accounts based off entity structure

Different types of entity structures require different setup procedures in the chart of accounts.

  • S-Corp  some expenses that made by the owner if incorrectly used for personal expenses should be categorized as shareholder distributions if they are run through the business account. Additionally S-Corps should record the initial issue of common stock at par value as an item required under owner equity.
  • Partnerships – under a partnership entity structure it is important to determine the capital accounts of each individual partner. Because of this, the best practice is to create a separate equity capital account showing the capital contributions and distributions divided out by the partner as the business operates.
  • C Corps – need to keep track of additional paid in capital as well as unappropriated retained earnings in the course of business. This calculation is important in determining dividend payouts to shareholders.

Invoicing within QuickBooks

If you are using the invoicing feature within bookkeeping then you want to make sure all paid invoices are correctly matched with the invoice in the system – otherwise it will retain an accounts receivable balance incorrectly on your balance sheet and continually send invoice reminders to your clients. The correct way to handle invoices sent through QB are to match deposits with the corresponding invoice.

Reconciliations

Reconciliations – make sure these are done on a regular basis. As with all technology there can be mistakes with the bank’s software or with your bookkeeping software. This is why it may be a good idea to seek professional help to have that second set of eyes and make sure you aren’t leaving money on the table and leaving out expenses

Incorrectly classed accounts

Incorrectly classed meals – from a tax perspective meals and entertainment are only 50% deductible that’s why if you have an employee event or some kind of employee meeting that benefits the employer (i.e. having lunch provided so that employees don’t have to leave the premises to meet deadlines) you can class these as some kind of team meeting so that you don’t take a 50% haircut when it comes to tax time. This is one of many bits of knowledge that Booked Financial is able to provide due to our extensive knowledge of both sides of the equation and one of many ways we can add value to your business.


If you need help managing your books or just for more information – get booked for a call with your Booked Financial Rep

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This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Booked Financial LLC recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager. Depending on the nature of your business there are different variables that would make one option better than the other.  

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