If you are managing your own company or business, it is vital that you maintain good bookkeeping records. Why? Because, many studies have shown that companies with bad accounting records and books of accounts are more prone to failure and have lesser chances of survival as compared to companies or businesses that keep good accounting records. So, below are some general bad practices or mistakes in bookkeeping that you should avoid in order to keeping good accounting records.
Not updating the books regularly
Bookkeeping is often considered as a hectic activity after a long day. However putting in the time and effort to systematically maintaining and updating your books will save a lot of time.
Not reconciling your accounting ledgers to your bank statement
Matching and balancing you accounting ledgers with your bank statement confirms that all the transactions that are appearing in your bank have been recorded in your books accounts. It is the first thing that both your tax auditor and tax accountant will see. If you do not regularly reconcile your accounts with your bank statements then:
• Your tax accountant will have to do extra work resulting in more costs to you.
• You will end up paying more tax than your actual tax liability because you won’t be able to claim your tax deductible expenses owing to the deficiency in accounting records and a lack of evidence.
• The risk of being penalised during tax audit will increase because the tax auditor or tax inspector will doubt that you have taken due care in maintaining your accounting records.
So, it is of utmost importance to balance and reconcile your cash & bank ledger with your bank statement at least once in a month or on a more regular basis.
Not recording receipts and payments in cash
Many business owners and particularly small companies’ owners do not bifurcate between business and personal expenses. They mostly pay personal cash for business expenses or utilize business cash for personal expenses. If they do not record all such expenses separately, it might cost them thousands of dollars in lost tax credits and deductions. For petty cash, it is suggested to keep a separate envelope or drawer in a safe place so that all sales receipts in cash can be put into that and all the transactions are also recorded in the books simultaneously. Before making any payment for the expenses, always get a receipt for everything you purchase.
Not documenting detailed information about transactions
Generally, when many business owners or entrepreneurs go to their tax accountants for preparation and filing of annual tax returns, they bring copies of bank statements or receipts in their raw form. Their tax accountant will then have to spend a lot of time to drill down into each and every transaction. The best practice is to put an explanation or summary against every transaction when everything is fresh and current so that it could be understood by the accountant. By doing this, you will not only save many hours of your tax accountant but also have a tension-free year-end.
However, to avoid such bad practices and costly mistakes, we recommend you to hire a professional accounting firm in Singapore to keep track of your financial accounts.