Save Money and Sleep Better: Avoid Common Bookkeeping Errors

Maintaining accurate bookkeeping records will not only save you money on tax preparation, it will help you sleep at night, because you do not have to wonder and guess about how your business is doing.  Information is power, but only if the information is accurate!

The following list is designed to help you avoid common bookkeeping errors:

1. Large expenditures such as equipment and vehicles: these are often incorrectly booked as expenses. Call your accountant for guidance when booking large purchases.  Items such as equipment and vehicles must be set up as assets and set up for depreciation.  Don’t make your accountant play hide & seek at the end of the year to hunt these down in your expense accounts!
2. Adding New Accounts: avoid adding new accounts to the General Ledger!   If you open a new bank account or credit card, or purchase assets (see #1 above), call your accountant for help in setting up the account properly.
3. Duplicate Vendors or Accounts: You know you pay Missouri Department of Revenue every month, but  QuickBooks is now asking you to add them as a new vendor. JUST SAY NO! Take the time to look through your vendor list – it’s probably in there with a different spelling, such as MO Dept of Revenue.  Same goes for duplicate accounts.
4. Sub-Accounts: use ‘em or lose ‘em.  Only set up sub-accounts when really needed.  Look at your drop-downs, and if sub-accounts exist for the account you need, choose one.  For example, you might have “Repairs & Maintenance” as an expense account, then “building repairs” and “grounds” and “maintenance” as sub-accounts.  If you do not choose a sub-account, it will show up as “Repairs & Maintenance – other” on the PL, and your accountant must spend time at year end to clean it up.
5. Reconcile Statements in QuickBooks: Always reconcile your bank and credit card statements.  If you have trouble, call for help.  We no longer accept QuickBooks files for tax preparation if they are not reconciled.
6. Loan & Credit Card Payments should NOT be booked as expenses!  First reconcile the loan or credit card statement, entering the interest and finance charges in the reconciliation screen.  Then enter a bill or  payment, and select the credit card or loan (liability) in the account field.  The only exception would be interest-only loans.
7. Payroll Processing is a common source for bookkeeping errors  Also, IRS penalties for missed payroll taxes can be severe.  If you process your own payroll, make sure you are fully instructed and call for help whenever you run into trouble.  The most common problems are caused by incorrect set-up of employees or payroll liabilities, and failure to use the Liability Payment window in the Payroll Center.
8. Donations can often be booked as advertising expense instead.  Is your business name listed in a program or on a team jersey?  Did your contribution allow you to attend an event where you can promote your business? Contact your accountant if you are not sure.
9. Health & Disability Insurance expenses for S-Corps and C-Corps: the shareholder portion of the expense should be split out with a special expense account.  You can memorize the transaction after you have set it up correctly.
10. Other Names List: On the QuickBooks menu bar, look at “lists/ Other Names List.”  There should be VERY FEW, if any, names on this list.  If you see a lot of names here, most of them are probably vendors and should be changed.  This is important for 1099 processing at the end of the year.
11. Loan proceeds: If you are taking out a new bank loan, there may be a tangled mass of capitalized expenses, transfers, and deposits.  Your best bet is to save all the paperwork until after the dust has settled, and and call your accountant to help you book it correctly.  We appreciate it if clients get this handled during the year, instead of dealing with it during tax preparation.
12. Owner Transactions: Fully document money transferred between personal and business accounts. (Do not deposit personal cash into a business account, as you will have difficulty proving to the IRS that it is not income.)

• Money moved between personal and business accounts should usually be booked to an equity account, not income and expense!
• A great way to give your accountant headaches is to use personal accounts for business expenses and business accounts for personal expenses.   It’s better to transfer funds where needed, then pay from the proper account.
• Since we’re on the subject, it’s good practice to have a plan for regular owner salary and/or draws, rather than handling this randomly.  In many cases, the business owner should be taking a minimum salary.