Here are the five most common accounting mistakes we see small business owners make.

A successful small business needs more than a great idea, a sought-after product or service and good marketing. A small business owner needs good accounting practices.

Accounting is so much more than simply addition and subtraction and owners who take it lightly can make costly errors that impede business growth. 

1) Not knowing the difference between cash accounting and accruals accounting

Yes, there is a difference – a big difference. Too often, business owners focus on cash accounting when determining their profitability and this only tells part of the story. Cash is an indication of how much money is in the bank at any given moment, but it does not show payables and other expenses. Just because you have money in the bank, does not mean you can afford to pay the bills. 

2) Recording expenses incorrectly

Business-related expenses, from meals and supplies, to parking and taxi rides, can be logged for tax purposes but every item must be added correctly and have the documentation to back it up in case of audit. Original receipts that include the business’s HST number are a must – credit card statements do not meet verification obligations.

3) Misclassifying expenses

When entering expenses, it’s important to classify each one correctly. Misclassifying expenses not only means that your books won’t accurately reflect what’s going on in your business, but will also cause headaches at tax time.

4) Waiting until year-end to update the books

Sure you may track your receivables and deliverables on a regular basis, but waiting until year-end to log expenses and other such transactions means having to remember what every receipt was for and why you saved it in the first place. Log as you go, or at the very least on a regular basis, so that your books, and your business, stays organized.

5) Trying to do it all yourself.  

Remember that your job (and your strength) is in running your business. It may not always be worth it to spend hours upon hours going over the details of your accounting records. Know when it’s time to lean on a professional accountant or bookkeeper to get the job done right.

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