As the new bookkeeper for our family owned business, I met with our accountant recently for an internal audit of the business records. An internal audit is the practice of reviewing a company's operations such as business structure and information systems. An audit will catch bookkeeping mistakes, evaluate spending patterns, and identify risky behavior. Here's some bookkeeping mistakes our accountant found after reviewing my books this past summer:
Lumping everything into single categories. With each check that I write, I make one entry in the ledger describing the purchase or the expenses. What I don't do is split the categories on checks that are paying for multiple items. While this isn't a huge problem, it does make it tougher at tax time when our accountant tries to enter these expenses into their proper categories onto the tax form. Taking the time to split the entries into standard bookkeeping categories as the checks are written saves hours for both me and the accountant at the end of the year.
Not tracking deductible expenses. I don't keep track of any business expenses that I pay for out of pocket, nor do other members of the family. This puts a crimp in our personal finances along with giving us a false sense how much the business operations are really costing us. We now have a petty cash system to reimburse family members for out of pocket expenses and business related mileage costs.
Not having paper backups. I've worked enough with computers that I know to keep a backup disc with all our financial data. What I don't have are paper records of all our transactions which is important in case the IRS ever wants paper documentation. At the end of every month when I reconcile the books, I will now print a paper copy of our data to kept in the filing cabinet along with receipts, deposit slips, voided checks, and other records.
Not surprisingly, the three mistakes I made in my record keeping are on the list of the top 10 mistakes made by small businesses who do their own bookkeeping. For us small business owners who manage their own books as a cost saving measure, having a regular review by an accountant is how to catch the small mistakes that can lead to bigger problems later.
*Note: This was written by a Yahoo! contributor. Do you have a small business story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.More by this contributor: Why your business needs a petty cash fund.