Top five accounting errors and how to avoid them

Accounting errors and how to avoid them

Accounting errors are all too frequent which can have a detrimental impact upon any business. From incorrect financial statements affecting business decisions to penalties from HMRC, errors must be avoided at all costs.

Below, we list the top five accounting errors we find and what you can do about them.

Our top five accounting errors

1.     Failing to keep accounts up to date

All business owners are busy, and it’s all too easy if you don’t have someone employed in the company to take care of the finances to keep putting off updating the accounts.

By not regularly updating the accounts, you leave the business at risk of losing money due to late invoicing, overdue payments, and late bill payments.

Being late in invoicing customers and bringing in revenue can affect cash flow and lead to the business finding itself with insufficient funds to continue effectively.

Not paying outstanding bills on time can cause issues and a bad reputation with suppliers who may cancel any credit account you have with them. You may also think you have more money in the bank than you have, leading to spending you can’t afford.

Block out essential time in the diary to update accounts regularly. This is far easier today with accountancy software such as Xero, which reconciles transactions automatically, and you just have to double-check.

2.     Failure to track expenses

Following on from the above, failing to keep accounts up to date can easily lead to inaccurate record keeping and failure to track expenses. As time goes by, receipts tend to get lost, and your memory fades of what you have paid and to whom.

Failure to track expenses is like flushing money down the toilet. You will end up paying tax on profits you didn’t have.

Using accountancy software that lets you scan receipts instantly eliminates the need for your vehicle’s footwell to be filled with paper receipts.

3.     Overdue returns

The latest date to file a self-assessment tax return for the self-employed is usually 31st January. For Limited companies, it’s 9 months after their year-end in most cases.  For businesses that fail to submit their tax returns on time, HMRC and/or Companies House will apply penalties.

The most common reason for not filing tax returns on time is a lack of planning. If you keep your accounts up to date, there should be no excuse for not submitting them on time.

4.     Miscategorisation

Another accounting error is due to the miscategorisation of expenses. Categorisation of expenses is crucial for any business to track spending and plan for the future. Categorisation allows a business to budget for the future and to see where savings may be made.

Aside from helping make financial decisions, if expenses are miscategorised, tax deductions on eligible items may be missed.

Again, by setting up categories using software such as Xero, mistakes can be avoided.

5.     Failing to use an accountant

It’s all too easy, particularly when starting a business, to think you can do it all yourself.  But as a busy business owner, if you are late filing a return, make mistakes, etc., you run the risk of penalties being charged by HMRC and/or Companies House, creating expense and stress.

Additionally, a qualified chartered accountant can help identify tax savings you may not have been aware of, thereby paying for themselves in many cases.

Using a qualified accountant gives you peace of mind. If you use a chartered accountant, they must be covered by professional indemnity insurance, so in the unlikely event of something going wrong, you are covered and may be compensated if necessary.

Top tips to avoid accounting errors

Don’t fall foul of one of these top 5 accounting errors. To avoid them:

• Plan ahead
• Use suitable accountancy software
• Hire a qualified accountant

If you would like to speak to Maynard Johns Chartered Accountants about how we can help with your finances, get in touch now at 01237 472071 or email info@maynardjohns.co.uk.