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5 accounting errors Pennsylvania business owners should avoid
In order to evade serious financial issues with potentially lasting effects, it is important for business owners to avoid common accounting errors.
It is not uncommon for Pennsylvania business owners to want to be involved in all aspects of their businesses. While they may be adept at product development, marketing and other facets of their operations, many business owners are not experts at everything. When it comes to accounting, this may lead to issues that could cause major complications and affect their bottom lines. Therefore, it is important for owners to be aware of common accounting mistakes to avoid.
Making data entry errors
When going through the books, it is common for people to make data entry errors. This may include transposing numbers or recording data in the wrong fiscal year. Entering the wrong data could result in incorrect balances, which may impact their statements moving forward and create a false picture of their finances. Thus, it is important for business owners to double check the data they are entering when they are reconciling their books.
Failing to record data
As business picks up, owners may put off updating their balance sheets. They may not report expenses or income, as well as neglect to adjust their inventory levels. The Houston Chronicle points out that this may present an inaccurate financial picture on businesses’ balance sheets. Consequently, business owners may not realize they are low on funds, which may affect their ability to fulfill their financial commitments. In order to avoid such issues, it is recommended that people regularly update their books.
Mixing business and personal finances
Sometimes, business owners’ personal and business finances may be tied together. However, it is not advisable for people to use the same banking accounts for both. Doing so may confuse which expenditures are business related and which are personal. A Forbes report suggests this could lead to issues with the Internal Revenue Service if business expenses are called into question.
Neglecting to maintain records
All too often, people look for the nearest trash receptacle when they are handed a receipt. This can be problematic, however, for business owners. It is important to keep receipts for purchases, invoices and loan documentation, among other records, for accounting purposes. Whether business owners have digital or hard copies, such records may help them resolve accounting mistakes or gaps. Further, receipts and other records may help them validate their financial statements to the IRS, should the need arise.
In some cases, business owners may seek help with their accounting. Some may hire people to aid with their bookkeeping, while others may ask a friend or family member for assistance. Although Forbes advises business owners to get help as their businesses grow, it is important to hire someone who is experienced with accounting. This may help them avoid financial problems, including audits and penalties.
Seeking legal guidance
When business owners in Pennsylvania, and elsewhere, make accounting errors, the effects may be detrimental to their businesses in short and long-term. In order to help resolve certain financial problems resulting from accounting mistakes, it may benefit people to consult with an attorney. A lawyer may explain their options and help them understand the laws as they apply to their situations, as well as guide them through the legal process.