Mistake Corporate Accountants Make That You Should Know
Accounting plays an important role in any business. Well-developed accounting system and policies may denote that the financial components of your business are in place. Equally important is the Accountant who is responsible to administer the policies and the system accordingly.
A tangible indication that your Accounting system and policies are in place is that records and documents are kept and transactions are well documented. So that when audit comes, these records and documents are ready. And when it is time for filing tax returns, it is less stressful since everything is well-documented and tax regulations are adhered to.
However, there are common mistakes that Accountants may make that you, as the business owner, should know. Even if you have the best Accountant in town, you still have to be on top of your business. Knowing these mistakes will give you lesser headaches to handle later on:
- Wrong balance in Asset and Liability Sheet – The asset records must contain debit balances and liability accounts must have credit balances. The usual errors for having wrong balances are writing entries to wrong accounts, or misclassifying accounts, or duplicating entries.
Examine your Balance Sheet monthly and be sure that assets and liabilities have the right balances. In cases where there is an account with wrong balance, check the details of the account to identify the error.
- Error in recording transactions in a prior period – It’s a rule of thumb that when you close your books for the fiscal year, you should not re-open the books and correct them. However, there are some Accounting apps that permit you to correct errors you have made but basically these are not allowed.
The best thing to do is to review and check with your Accountant’s recorded transactions in a prior period and be sure that the errors are corrected in current fiscal year before officially closing the books. You can also randomly check your prior period Balance Sheet to ensure that there are no changes and alterations. If there are, then you have to investigate.
- Wrong Balance in Revenue or Expense Balance – Revenue records should have credit balances and expense accounts should contain debit balances. Errors occur when staff posts entries to the wrong accounts, misclassify accounts, or duplicates adjusting entries.
Review and check your company’s Income Statement for any mistake and make sure that you have the right balances. When any account has wrong balance, get the details of the particular account to identify the entries that resulted to the mistakes. This can be done once a monthly.
- Misclassifying Costs and Expenses – When your business is still small, entries are posted faster and easier. Once a figure is entered, it is easy to spot the wrong expense record or expense description. However, when your business grows and misclassification of expenses occurs, it will difficult to detect these errors and could result in the system may not properly reflect the real status of your business. Later on, it will give you big problems if your business financial and tax reporting are not accurate and wrong description.
Review your Expense Statements regularly. You may do it yourself or assign somebody to go through your expense records regularly and periodically. If meal expenses are entered into the rental expense account, you will be able to spot the error immediately because of the expense description.
- Official receipts are not securely filed and kept – Your Accountant may have checked that all the expenses are recorded and classified correctly. Your accounting records are clean and without errors – now, IRAS will need proof. Receipts are your tangible proofs. Thus, make sure that all your receipts and supporting documents are securely filed and stored. You can even make duplicates of all these receipts.
You may have the best Accountant and efficient accounting staff. However, you still have to be on top of everything because it is your business. It is big trouble if you get entangled with tax authorities because of some errors in your accounting records and system. Aside from this, errors in accounting records may not be giving you the real status of your business.
In Corpworldbiz, we help our clients in preparing and maintaining their books. Should you have any queries in regards to our book-keeping services, feel free to contact us today.