Before you venture into any given business, it is important that you develop a clear vision of what you want to do and how you want to do it. In addition, an entrepreneur must have the drive to push things and achieve the desired goal. Unfortunately, most businessmen get caught up and are unable to handle accounting needs (Also see The why, when, and how of outsourcing Accounting). They make mistakes that are costly to their businesses. Here are the common accounting mistakes made by businesses.
Reporting Salaried Employees as Contractors
Understanding the difference between salaried employees and independent contractors is critical and can help you avoid penalties of not withholding and submitting payroll tax on time. Note that independent contractors have control over their schedule, how they get paid and the amount of work they do. They should also submit their own taxes. On the other hand, salaried employees have no control over the work they do-they are assigned tasks, they get paid by the employer and are told how they should do the job.
Regular Reconciliation of Accounts
The business must address certain accounting tasks on a regular basis for smooth running of the business. Reconciling the bank accounts is critical and must be done regularly. Ensure that all deposits and expenses are written in a separate book and should be checked regularly. Compare the statement you receive from your bank with the record in your books. If this is done regularly, it could help identify items that are not matching.
Linking Payments to Invoices
Ensure that you record the payments against the invoices. Failure to do this will lead to incomplete and inaccurate data.
Not Being Able To Differentiate Between Cash Flow and Profit
The amount of money received from your clients and the money that goes out as expenditure constitute the business cash flow. Having a positive cash flow is important because it is a sign that your company is healthy. It also shows that you are able to pay your bills as they fall due. However, it is important to note that cash flow is not the same as profit in the income statement. Profitability refers to whether you are making more money from the sale of product or service than you’re spending to bring it to the market.
These mistakes are easy to address, just set aside some time at the end of the week and take care of the accounting basics. If you are too busy to do this, you can engage an accounting firm in Johor Bahru and let the expert to do the job at a fee.