As a small business owner, your desire is to do things the right way. And one of those things is to track your expenses. So what do you do? You go out and buy QuickBooks or some other small business accounting program. And then you make the #1 mistake all businesses make when they purchase a software package – you don’t maximize the program and use it to it full capability. Don’t worry most large companies do it to with even more expensive packages. It’s one of those things I will never understand.
Now you’re probably asking yourself “what mistakes do I make”. Well I will tell you. Here are the top five mistakes made when using QuickBooks and other small accounting packages:
- Setting up the chart of accounts incorrectly. As a business owner you need to track your business expenses in categories that pertain to YOUR business. Although QuickBooks comes with a template list of accounts for various types of businesses, there will still be accounts that will apply to your business and not necessarily your competitors. So be sure to have an account created for any type of expense that cannot be captured in the accounts that are already created. Also, be sure that you are categorizing the accounts correctly. An expense account should not appear in the Assets section of the Balance Sheet. When in doubt create an “I Don’t Know” account to ask your outside accountant later.
- Using the Write Checks module to input any and all types of transactions. Often times a small business owner is busy building their business which will cause them to lag on their financial record upkeep. As a result, when the time roles around for them to produce financial records they are scrambling to get everything in. The result is that all transactions are inputted as check payments, whether they are check payments or not. This module should be used for check payments and debit transactions ONLY. There are other modules for other types of transactions.
- Using the Creating Invoices and/or Enter Bills module incorrectly. In this case an invoice or bill is entered correctly, but the process to record the payment is done incorrectly. You can’t enter an invoice or bill in the appropriate module and then pay it through the Write Check module. That creates double counting. And double counting equals too much income or too many expenses being recorded. And we all know the result of that…an invitation from the IRS.
- Use the Adjusting Journal Entries module to input all types of transactions. This is the same as #2 above, with the exception that they are inputting everything as an Adjusting Entry. This module should only be used for transactions that do not fall into any of the other modules.
- Not reconciling your bank statements every month. This should be closer to #1 but without numbers one through four being done then #5 can’t possibly happen. In order to know where your cash balance stands at the end of the month, you MUST reconcile your account. This reconciliation can ONLY include transactions that actually went through the cash account. Bank account reconciliation is a necessary tool to understanding your cash flow. Remember Cash Is King!
All rights reserved. © 2012
Reblogged this on P3 Service Bookkeeping News and commented:
Great information from A&S Financial!
I believe a HUGE mistake is in setting up a short term payable or receivable account as a true A/P or A/R account when setting up as a new account. This locks you in to utilizing the invoicing system or bill payment system in order to account for any activity. These short term (non customer) accounts should be set up as Current Liabilities or Current Assets. User beware!
Oh I totally agree. Only vendor bills and customer accounts should be set up in the A/P & A/R modules.
Number 4 is great! I don’t ever recommend using journal entries for, well, pretty much anything.