by on January 8th, 2013
Like most things, accounting is easy when you know how. The trick is to get your accounting system working correctly from the outset, because systematic accounting mistakes that run undetected for months, or even years, can cause your business to lose money.
Your accounts give you basic information upon which you make decisions, such as “What are my sales?”, “How much money is in the bank?”, ”How much money am I owed?” or “Am I making a profit?”. If your accounts are not giving you the right answers to these questions, you will make the wrong decisions or simply not earn the return from your business that you should have.
# 1. Balancing your bank accounts
Most people use software for their accounts. This leads them to believe, mistakenly, that their books will be “balanced” and correct. This is simply not the case. You have to actively reconcile your bank accounts to ensure that all the transactions you have entered are complete and accurate. This applies whether or not you use software, spreadsheets or even manual books.
Let’s suppose that you paid your insurance company $700, but you entered this in your books as $7,000 without noticing it. Your bank statement would show a payment of $700, but your books would show a charge of $7,000, which is an overstatement of $6,300. If you don’t routinely check your bank statement against the transactions that you actually entered, it is highly unlikely that your accounts will be right. Even experienced bookkeepers make occasional mistakes.
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