Common Bookkeeping Mistakes That Could Bring Down Your Business
October 5, 2020 | Written by: Sohail Afzal
Small business owners often consider bookkeeping activity as an unnecessary evil. Everyone knows that accounting is crucial and necessary for all businesses, yet the vast majority do not take it seriously. Without good accounting management practices, you may have a distorted view of reality and the financial affairs of your business. There are many mistakes that people make while doing their business bookkeeping. In this article, we’re going to shed light on the most common bookkeeping mistakes that could bring your business down.
Using the Same Bank Account for Personal and Business Expenses
If you are a small business owner and incur business and personal expenses from the same bank account, you would be in trouble when it comes to filing your annual taxes. If you don’t follow the CRA tax laws and guidelines, you will face serious consequences in terms of interest charges and penalties. It is essentially important to immediately draw the line between personal and business expenses. Having the same bank account for business and personal expenses, you will end up in disorganization of business receipts and eventually lose control of your bookkeeping matters.
Unaware of Tax Obligations
If you run a small business in Canada and you are not aware of the taxes which are applicable to your business jurisdiction, you will be caught up at the time of CRA’s assessment. When you file your personal or corporate income tax returns, the Canada Revenue Agency (CRA) may ask you for more information on some of the line items included in your submitted tax returns. If you fail to provide such information, the examiner of the CRA will penalize you or may start a formal investigation against your business. It is essential to provide all the necessary information to the CRA’s examiner during the whole assessment process. When you are not fully aware of your tax obligations, it would not be possible for you to furnish relevant documents for the successful completion of your assessment with the CRA.
Duplicate transactions are dangerous. If you’re not careful about duplicate transactions, you will end up in the wrong calculation of HST payable and it will also impact other business taxes as well. The less you look at the bookkeeping process, the more likely you will make these accounting mistakes because a misunderstanding in the account categorization can lead to duplicate entries which may result in tax filings with inaccurate tax payables.
Misplacing your Documentation
Invoices are considered proof for the tax authorities. It would be best if you keep them in a safe place so that you can justify your invoices. Contractors, sole proprietors, and other small business owners may misplace their business receipts. This can lead to a bigger problem over time in the event of a tax audit. If you do not take these reimbursable expenses into account, you risk losing your tax credits.
Receipts are the official proof of transactions. It is recommended not to lose this official evidence and keep it in the same place as the online copy on your computer and the cloud. Otherwise, it would have been a disaster at the time of the tax audit!
If you do your bookkeeping at the year-end, there are chances that you make more mistakes in accounts classification and categorization. The bank reconciliation is a process used to ensure that the company’s books are aligned with the bank statements. Skipping this verification step could result in irregularities or errors in your books. To have your books in order, take care to do your bookkeeping and bank reconciliation every month.
Need to Consult an Expert Accountant
If you feel that you don’t need expert advice in preparing your financial statements and for the tax planning, you may lose sight of many pertinent issues that can jeopardize the financial side of your business. You will need an expert accountant around you to advise you. You can’t deal with all accounting and tax matters of the CRA yourself if you are not an accounting expert. Know your strengths. Don’t hesitate to ask for help where you know you need it.
For example, you can ask for an expert’s advice to do your business taxes. You need to avoid costly mistakes, contact an accounting expert.
To avoid such bookkeeping mistakes, we recommend that you follow the basic principles:
- To open a separate business bank account for business-related expenses
- To get the right accounting software; whether desktop-based or the cloud-based accounting software
- To keep your business receipts/invoices safely, you will need to them at the annual assessment of your taxes with the CRA
- To know your tax obligations
- Lastly, to dedicate part of your time to bookkeeping
If you focus on the above 5 points, you can control your business bookkeeping activity more effectively, it can help improve the productivity of your business and also assist you in avoiding common bookkeeping mistakes that could bring your business down.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.