CATEGORIES

Three QuickBooks Errors that Will Bury Your Business.

The seemingly minor mistakes that you may be making in QuickBooks could actually be quite costly.

Delaying dull yet important tasks, or failing to address oversights or to correct inaccuracies in your bookkeeping, could cost you more time and money than you would have spent to do it right the first time.

Stop stalling and start getting your accounting life in order by ensuring that you do not make these three common mistakes in QuickBooks.

1) Mismanaging accounts receivable.

Business owners commonly struggle with invoicing. They are particularly bad at marking invoices as paid and recording deposits. But if your accounts receivable are off, then creditors or investors may not view you as worthy of their investment, perhaps causing them to revise terms, revoke credit or restrict your access to capital  altogether.

The most common mistakes with QuickBooks invoices include:

  • Lumping more than one payment into a single deposit. Hitting “receipt of payment” directly deposits proceeds into your bank account. But if you are depositing two or three checks together, only the total will be recorded. This will prevent you from properly reconciling your bank statements. Avoid such problems by recording each individual payment in “undeposited funds.” You can then list each invoice paid as its own line item and reconcile it with your bank statement.
  • Not recording a deposit against an invoice paid. If you just record the deposit, and then mark the invoice as paid later, you will record the same amount twice, thus throwing off your books. Avoid unnecessarily cleaning the error up later by marking paid invoices correctly.

Lenders and investors want to see clean balance sheets. Therefore, they will be disappointed—if not alarmed—if you provide them a balance sheet that says your accounts receivable is $X amount but the corresponding details that you print out show minuses to customers’ accounts or large amounts’ owed.

Perhaps, you neglected to tell your accounting department about a deposit you made in haste. But if they ask you for explanations, you should be prepared to answer fully and adequately. Or, better yet, avoid such an unpleasant conversation by having your bookkeeper download banking transactions into QuickBooks daily and reviewing them for invoicing discrepancies that warrant your attention.

2) Recording personal expenditures as business expenses.

Whether intentional or accidental, paying personal expenses with your company’s funds could cause bookkeeping confusion that could skew tax liability calculations. You can pay for personal expenses but they must be drawn from a disbursement account so that they can be applied against your shareholder equity rather than as a business expense that is written off. The following transactions are examples of personal expenditures that you should not write off:

  • You accidentally use the wrong credit or debit card to pay for groceries or personal expenses while traveling.
  • You do not have enough funds in your personal account so you use business funds to purchase a household item with no benefit for your company.

Your accountant will help you identify and write off as many justified business expenses as possible but they do not want to draw undue attention from the Internal Revenue Service by writing off transactions that may be questionable at best. Upload all of your receipts at the time of purchase using one of the numerous applications for smart phones that integrate with QuickBooks. Or, use the feature in the online version of QuickBooks that allows you to do so.

This may take you a few extra minutes when you leave the store but it will simplify your accounting, as well as allow you to discard paper receipts after you store them electronically. Provide your accountant with a weekly report that clarifies which receipts were for  personal expenditures so that they can reduce your equity in the business appropriately—rather than writing it off erroneously.

3) Procrastinating preparing your tax returns.

You may not feel that you need an accountant to compile all of the information needed to prepare your tax return. But if you do it yourself be sure to allot the time needed, which for almost 60 percent of small businesses is more than 40 hours per year for federal returns alone, according to the 2014 Small Business Taxation Survey by the National Small Business Association.

If you do not work on your taxes throughout the year, you will have to cram a lot of work into your already busy schedule as deadlines draw near. You may also incur larger tax bills by not paying the proper amount of estimated taxes quarterly. Business owners typically want to withdraw funds from the company during the year without incurring payroll taxes, but if you do not calculate your personal tax liability for shareholder distributions properly you can incur penalties and interests.

Keep clean books by regularly tracking payroll and shareholder distributions so that you can pay your quarterly estimated taxes accurately and on time.

Accept the importance of staying on top of your bookkeeping and taxes and commit to doing so. With the online version of QuickBooks, you no longer you need to spend additional hours at the office working on your books when you could be working on your business instead. You can access it from anywhere with an Internet connection and you will always have the latest version of the software.

If this is still too time consuming, then consider outsourcing this important responsibility. Getting your accounting life in order will let you give your business the attention it deserves and the resources it warrants.

chad1Chad Shultz is a Florida Certified Public Accountant and a Certified QuickBooks ProAdvisor who has worked with small business owners and sole proprietors for more than 15 years. He started StartupsCPA to offer business owners a better way of processing the day-to-day accounting data. The firm’s accounting platform allows small-business owners more time to concentrate on their core business. He can be reached at chad@startupscpa.com or (904) 400-1238.

http://chadshultzcpa.com/

—————————————————————————————————————

Forty percent of small businesses spend more than 80 hours per year dealing with federal

taxes, according to an online survey of more than 1,100 business owners that the National Small Business Association conducted in March 2014. Here are some additional findings from the NSBA’s annual Small Business Taxation Survey.

  • Nearly 60 percent of small firms spend more than 40 hours per year on federal taxes.
  • Almost half spend more than $5,000 annually on the administration of federal taxes in the form of accountant fees, internal costs, legal fees and similar expenses.
  • 86 percent pay an external tax practitioner or accountant.
  • 12 percent handle their taxes within their firms.
  • 53 percent identified administrative burdens as the most significant challenge posed by the federal tax code.
  • 47 percent cited financial burdens as the most significant challenge.
  • Income taxes were ranked the most burdensome administratively (83 percent of small businesses are pass-through entities in which owners  pay taxes on business income at their personal income tax level).
  • Payroll taxes were ranked the most burdensome financially.

Source: NSBA 2014 Small Business Taxation Survey

 

 

 


Leave a Reply