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Home / Finance / Tax and Accounting / Common and Costly Bookkeeping Mistakes
Common and Costly Bookkeeping Mistakes

Common and Costly Bookkeeping Mistakes

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Aug 25, 2016 By TaxConnections

Tax Question

What are common and costly mistakes made in corporate bookkeeping during the year and how can these be avoided?

Facts

There are many simple checks and cross checks that can be done monthly to help find and correct common and costly bookkeeping mistakes.

Discussion

Bank accounts, Accounts Receivable, Accounts Payable, and Sales Tax accounts are common areas of avoidable bookkeeping mistakes.

Bank accounts are often reconciled using a reconciliation report within your bookkeeping software. This is a step where you check transactions. Sometimes, even though this report will tell you the bank account is reconciled, an error has occurred within the software set-up and the account is not actually reconciled to the account balance on your ledger.

This can be avoided by additional steps such as cross checking the numbers that the computer is relying upon. For example, checking that your closing bank statement balance per the reconciliation actually agrees to your bank statement for the month and that your closing bank account ledger balance per the reconciliation agrees to your ledger. Accounts Receivable and Accounts Payable modules in accounting software sometimes will let you post a transaction to the controlling account without using the sub-ledger module. This creates errors in that your Accounts Receivable or Accounts Payable summary listing will no longer agree to the amount in your ledger account. This can be avoided by cross checking monthly that your summary Accounts Payable and Accounts Receivable report balances agree to your ledger. If you do this monthly, errors should be easy to identify and correct.

Sales tax returns are often filed based on the sales tax reports within your bookkeeping software. However, sometimes transactions get posted through the general ledger to these sales tax accounts without being linked to the sales tax reports. Therefore, it is important to cross check these sales tax reports each month to ensure they tie to the balances in the ledger. Then the appropriate adjustments can be made on the sales tax return for any discrepancies due to journal entries that were not caught by the monthly sales tax report.

Recommendation

All of these checks and cross checks work on an old software adage GIGO (garbage in equals garbage out): If the software user is not checking what is entered they can not rely on what is being output.

Author: Grant Gilmour has been in the CA business since 1988, starting his own practice in 1994. His tax expertise encompasses tax planning, international tax issues, and Scientific Research and Development tax credits. He is a graduate of the CICA In-Depth Tax Course and in 2012, Grant received the CA Community Service Award and the Scout Leader Medal.

Filed Under: Tax and Accounting Tagged With: Accounting, Bookkeeping, Mistakes

Source: TaxConnections

TaxConnections

TaxConnections

TaxConnections Worldwide Directory of Tax Professionals is an authority site of tax advisors from around the world. As the leaders in our market vertical, you can find and interact with tax professionals in corporations, law firms, public accounting firms, tax services firms, government and academia in one click. Through our innovative technology, we maximize the exposure of a tax professional’s expertise and services to the more than one billion people who go online for tax advice each year.

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