1. Accidentally Recording Transactions in a Prior Period
Once you've "closed the books" for a fiscal year, you really shouldn't go back to change them. Still, some accounting applications, such as QuickBooks, don't allow you to lock a prior period financials so you can post current year's entries in a prior period if you're not careful. Other accounting software programs allow you to make this mistake if you haven't configured the software to lock prior period financials.
Review Prior Period Balance Sheet for Changes
If you've recorded transactions in a prior period, the Balance Sheet will change. Therefore, you can check your prior period Balance Sheet to make sure it hasn't changed since you last closed your books. If it's changed, you'll need to investigate.
2. Incorrect Balance in Asset or Liability Balance
Asset accounts should have debit balances, while liability accounts should have credit balances. The most common causes of having an incorrect balance in these Balance Sheet accounts is posting entries to the incorrect account, misclassifying accounts, and duplicating adjusting entries.
Check Your Balance Sheet for Errors
You check Balance Sheet to make sure assets and liabilities have the correct balances. If there's an account with an incorrect balance, you can pull up the detail of that account to find the entries that caused the error. This check should be performed at least monthly.
3. Incorrect Balance in Revenue or Expense Balance
Revenue accounts should have credit balances, while expense accounts should have debit balances. Some causes of this error is posting entries to the incorrect account, misclassifying accounts, and duplicating adjusting entries, which is the same reasons for having incorrect balances in Balance Sheet accounts.
Check Your Income Statement for Errors
You check your Income Statement to make sure revenues and expenses have the correct balances. If there's an account with an incorrect balance, you can pull up the detail of that account to find the entries that caused the error. This check should be performed at least monthly.
4. Misclassifying Expenses
Small business accounting systems save time because entries can be posted quickly and easily. When information is being entered it's also easy to pick the wrong expense account or expense description. Misclassifying expenses not only means that the accounting system may not properly reflect what's going on in your business, but can cause real headaches if financial and tax reporting isn't accurate.
Look Over Your Expense Statements Periodically
Assign someone to scan your expenses periodically to make sure the data appears reasonable. For example, if a meals expense is booked in the lease expense account, it'll usually stand out because of the entries description. Another indication that expenses may be misclassified are unexplained budget-to-actual differences.
5. Not Seeking Help When Needed
You've heard the expression "penny wise and dollar poor" in reference to people who'll spend a few hours of their time to save a few dollars. You've got to realize that you job is to run your business - a contractor builds, a painter paints, and a realtor sells. Sometimes it's just not worth your time to spend hours upon hours going over the details of your accounting records or researching how to correct an error you've made.
Lean on a Professional Accounting Professional
If you can you'll make more than you'll spend by tending to other issues than your accounting issues, then you should consider outsourcing the problem to a professional accountant or bookkeeper.
6. Not Saving Receipts
You diligently recorded all your expenses in your accounting records. You’re expense statement is a work of art, without any errors or omissions. Then, you’re asked by the IRS -- prove it.
Keep Your Receipts
Save your receipts or make scanned copies of all of them.