If you are running a small or large business entity, you should keep proper accounting records. Studies showed that businesses with poor accounting records are destined for corporate failures as compared to those who do it properly. Below are six common accounting mistakes that you must avoid:
They don’t pay attention to their accounting needs. People are generally afraid of taxes typically because of the consequences of not actually filing their tax returns. It is such a large and unruly subject to understand and handle. A lot of people would just stick their head in the sand and expect it to go away and of course it never does. Most of the time it leads to them getting shut down.
Businesses that don’t keep proper records or do most of their business in cash don’t actually keep the receipts. The drawback of not keeping the receipt is that they can lose hundreds of dollars against deductions on an income tax return just because they don’t actually have the paper to back it up. It is very important to keep your records in paper format for a minimum of five years.
Another common accounting mistake is that corporations don’t file or pay payroll tax and sales tax in a timely manner. Payroll and sales taxes are treated differently from income tax because in both of them you will be the withholding or collecting agent and are considered as the trustee on behalf of the government. If you don’t actually file and pay those taxes on time, the taxation authorities will come after you personally for those amounts rather than coming after the business.
Another mistake that typically happens is missing deadlines. Missing a deadline would be not filing a return on time or something of that sort. The easiest way to avoid that is first off, putting it in your calendar every single year that deadline will be recurring and that you have a business. For instance, if your tax return due date is approaching, file an extension for filing of tax returns through the online tax portal. It usually takes about five minutes to do and it will give you an entire six months to file that return. So, make sure you don’t miss the deadline by filing an extension.
Another common mistake is about rights for revenue recognition. A lot of companies don’t record their revenue properly. For instance, if you are in the daily deals business, you may be receiving cash from your customers for deals you sold and you might be recording revenue. When the cashier receives the cash, it should be recorded as the deferred revenue. It is not revenue until that deal is delivered and the person has actually gone to.
Accruals are liabilities that you are liable to pay and for which you have not received an invoice yet. Many businesses do not understand the accrual concept. However, these are crucial for the prudence basis of accounting. Accruals need to be estimated, for instance the accrued vacation for employees. There is actually a liability that your company has for the payroll related to vacation time that has not yet been taken by those employees. So, don’t forget to book your accruals. And if you still are not sure about how to do proper accounting, you should contact a professional firm offering accounting services in Singapore.