Today’s post is written by Melissa Powell, CPA. As an expert in her field, she discusses how to overcome accounting blunders and efficiently manage financial operations in business.
Common accounting errors such as data entry mistakes, financial controls given to one person, and not categorizing income and expenses, interfere with business operations. SCORE, the Small Business Association’s resource partner, recommends accounting software such as Intuit, QuickBooks, or Peachtree to simplify business accounting processes.
Mistakes happen, but in accounting, accurate and timely data entry provides the information required for business decisions and profitable operations. Accounting checks and balances help uncover data entry errors, while regular reconciliations ensure that errors are noticed in time to correct them. When regular reviews are performed, unusual transactions are easily observed and can be reviewed for accuracy and correction. There are several ways to reduce data entry errors:
- Implement a policy for data entry performance and review that defines the data entry work, how it will be performed, and how it will be reviewed, including timeframes such as daily or weekly data entry reports.
- Create a policy to make sure reconciliations for monthly banking, accounts receivable and payable, and budget variances occur.
- Have a procedure and timeframe for correcting errors and performing reconciliations.
Financial Controls Given to One Person
A conservative separation of duties ensures accuracy and reduces the opportunity for fraud and theft. There should be oversight of the person paying company funds, making deposits, managing budgets, and purchasing inventory and equipment. Periodic audits of financial controls by senior management, or an accounting audit service ensure that financial controls are in place to protect the company’s financial assets and accounting procedures.
Income and Expenses
Mistakes categorizing expenses and income must be minimized and corrected quickly. Money going in and out of the business must be monitored to prevent surprises and shortfalls that negatively effect operations. Use standard categorizations for income and expenses, make entries on a regular basis instead of waiting for an annual reconciliation, and don’t overuse miscellaneous or new categories.
Other Common Accounting Errors
There is a lot of room for error in accounting with manual practices. The more automated the processes, the less chance there will be for error. Accounting software helps with reporting and reviewing capabilities, but manual practices such as keeping and categorizing receipts, performing data entry, and keeping a clear paper trail are critical to a good process. Look at all accounting areas periodically to see if there is any lack of timeliness, oversight, or general accounting procedures and make changes if needed.
Here are other common accounting errors to watch for:
- Lack of communication between different people handling financial transactions. An example of this is a bonus paid or a taxable gift given by a manager but not communicated to the bookkeeper or accounting department.
- Sales tax accounting miscalculations, such as not deducting the sales tax from the total sales figure, is a common error that results in the wrong amount reported for sales.
- Not keeping accurate records of and reconciling petty cash or other small funds is another common accounting error.
Melissa Powell is a certified CPA who shares her expertise on various websites.