3 Common Accounting Mistakes Small Businesses Must Avoid

1. 3 Common Accounting Mistakes Small Businesses Must Avoid Keeping a record of financial transactions, is not a matter of choice, but a necessity for businesses. Companies, therefore, have a separate accounting department to takes care of this crucial role. In fact, many organizations seek the services of accountants in Englewood, NJ and other parts of the country to perform specialized accounting tasks,. But sometimes even these specialized firms might commit minor mistakes that can result in substantial costs. To help you steer your business in the right direction and stay clear of financial troubles, in this post, we take a look at some business accounting mistakes to avoid. 1. Failure to distinguish between personal and business transactions Mixing business and personal transactions is a sureshot way to mess up your business’s finances. To avoid confusion, always keep a record of business transactions, whether you pay out of pocket or use funds from the business account. Similarly, record personal transactions for which you paid from your business account. Doing so will help you claim tax deductions.Avoid using your personal account frequently to conduct business transactions. Instead, use your business account as often as possible. 2. Not reconciling books with bank accounts Most small businesses at some point face the problem of mismatching books and accounts. At the root of the problem is a callous accounting team that does not consider it important to reconcile the books with the bank statements. The activity must be carved in stone. Reconciling the books with accounts helps detect errors and track the financial situation of the business. To save time, opt for an accounting software with a built-in bank reconciliation feature. 3. Failure to understand the difference between cash flow and profit In layman’s term, cash flow is the inflow and outflow of cash, whereas profit can be defined as the amount left after necessary expenses. Many businesses fail to understand the difference

2. between the two terms and often use it interchangeably, which can result in substantial losses. To avoid this, keep a track of the items you are selling and the expenses incurred. To analyze your business’s financial health, review your financial statements regularly. Conclusion Gauging your business’s financial health must be one of your KRAs.To ensure your findings are accurate, avoid these common accounting mistakes. Use an accounting software and take regular backups to ensure data is not lost in case of natural calamities.