When running a small business, it is important to have accurate financials to maximize cash flow. Understanding the bookkeeping system and the common misconceptions that come with it is important if you want to be a successful business owner. Here are a few common bookkeeping misconceptions.
1) Accurate Financial Reports
A large amount of CEO’s put too much trust into their financial reports without being knowledgeable about where their numbers came from. Even if one small number is off, it can prove to be an extremely costly mistake for the company. Auditing your bookkeeper is a great way of assuring that you understand the reports thoroughly and to make sure that they are accurate.
2) Bookkeeping as Data Entry
Another misconception is that bookkeeping is just manual data entry. That might have been how things got done in the old days, but technology has changed the game. Nowadays applications exist that can automate the data entry process for you and even process transactions. Apps also exist for customer invoices and payroll, among others.
3) Bookkeeping is for Tax Season
Most people assume that bookkeeping is only required for tax season and therefore only do it once a year. By keeping your books on a constant basis throughout the year, you can have financial reports at hand if you want to get a loan, make good management decisions, or just manage your cash flow.
4) All Bank Deposits are Income
Recording every bank deposit as income is a critical mistake that many small business owners often make. This often leads to overstated or understated incomes on your reports, which can really hurt your business in the long run. Common deposits that are often mistaken as income are account transfers and equity moves. If all of the bank deposits are income however, you should categorize the sales into different sections so that you can see which divisions of your company are performing well.
By UNIKO Media Group