Mistakes in your business accounting or flawed record keeping can be very costly and destructive. Our first and best advice to business owners is to seek out qualified accountants to keep your records. Accounting methods are not a mystery. However, quality accounting and record keeping does require extensive education and training.
For Do It Yourself (DYI) Owners: Business Records and Mistakes to Avoid
A Reliable Accountant Will Get Rid of a Headache Faster than an Aspirin.
Here at A.P. Accounting and Tax Service, our accounting experts are never surprised by the contents of business records of new business clients. New clients are often DYI (Do It Yourself) business owners. When we assume control of their accounting records, we never know what we will find. A.P. Accounting and Tax Service would like to share some general areas that often cause serious problems.
There is also one Major mistake that can lead to 3 other mistakes or errors. That is an area referred to as “Commingling.” Commingling is or can be the cause of other mistakes.
Confused and Unstructured Records
Most of our new clients are very smart. They have tremendous products, very creative ideas, and a great profit margin. So, it may be surprising to learn that their records are often a mess. One problem that seems common to most DYI businesses is the absence of structure. As a result, sometimes the records are confused and a little jumbled. And sometimes, they can’t be found.
These can be a real challenge. And it can lead to costly mistakes. Quite often, we find math errors in business records and in Income Tax Reporting.
How can this happen to talented business people? The answer to this puzzle is usually quite simple. They are not trained in good accounting principles and techniques. One example comes from the IRS.
2 + 2 = 5: Letters from the IRS (Common Error)
One of the most common fears that taxpayers have is being audited by the IRS. There is a fear that creeps over all of us when we receive a notice from this government office. This is true if we own a major corporation or simply file a personal 1040 tax form.
Those notices may be only letters asking for clarification of information in tax reports. Many times it involves a simple math error. But the blood pressure still goes up when you see the IRS label. According to the IRS, “the most common error on tax returns, year after year, is bad math.” Mistakes in arithmetic or in transferring figures from one schedule to another will get you an immediate correction notice.
IRS representatives say, “math mistakes also can reduce your tax refund or result in you owing more than you thought.”
Bookkeeping, Accounting Errors, and Failure
Commingling: Living Life Dangerously?
Many businesses bring their records to us. And many harbor feelings of failure. They are usually not proud of their accounting and bookkeeping skills. They freely admit they have limited knowledge of accounting.
We are never judgmental or shocked. Most accountants are familiar with at least 39 different mistakes. These mistakes are made by sharp business people which are often repeated year after year. We would like to share 4 of the worst “goof-ups” or mistakes.
The special staff at encounters these classic mistakes almost daily in Florida businesses just like yours. Most of these business owners are DYI’s or small business owners. Before you read them, we want you to know, A.P. Accounting and Tax Service can readily help you correct such mistakes and add to your peace of mind. Therefore, you need not be worried or apologetic if you recognize these errors because knowledge of the problem is the first step in finding the solution.
Mistake #1: Commingling, Probably the Most Dangerous
The mixing of business and personal spending is known as a type of “Commingling.” This our top-ranked, number one worst bookkeeping error. You’ll easily understand why.
Remember that commingling may often be the cause of the other three mistakes that follow.
First, let’s look at this yes/no questionnaire.
The Personal Expense vs. Business Expense Questions
Answer these questions and see how you rate.
1. Do you take money out of the business account and put it in your personal account without documentation?
2. Have you been writing business checks for your personal purchases?
3. Did you pay for that business luncheon with your personal credit card?
4. Did you make withdrawals from your business checking account to pay for a personal expense without documenting it?
5. Do you utilize the same bank account for your business as well as personal needs?
6. Do you deposit checks made out to your business into your personal account?
Record Keeping or Accountant Nightmares? A.P. Accounting and Tax Services Can Help.
How Did You Score?
If you answered any of these questions “yes,” then you have first-hand experience with the top-ranked bookkeeping mistake of all time.
Real-estate expert Brandon Hall states it this way. “Think of “commingling funds” as accidentally using your personal account for business income and expenses or your business bank account for personal income and expenses.”
The business owner only maintains one bank account for both personal and business expenses in the most extreme cases of commingling. Commingling of business and personal accounts is a bad business practice. And there are many reasons to avoid it.
Please join us for the next episode: “Part II Commingling or Losing the Clothes on your back.”
Commingling: Two-Headed Dragons are Cute. But they could be deadly to your expense account.
We will explore the legal complications of mixing personal and business assets and liabilities. Additionally, we will look into Major Mistakes # 2, 3, and 4. We will examine the relationship between these errors and “commingling.” Are they caused by commingling as they appear to be?
Until next time, We leave you with these words from Will Rogers.
“Get someone else to blow your horn and the sound will travel twice as far”
