Your small business is humming along. You’re building up your revenue, and everyone’s busy. Congratulations. But your bookkeeping is a white-hot mess you don’t want anyone to know about. You set up QuickBooks – the most common accounting software – to track your income and expenses. You’d like to generate polished financial reports, but…there are some odd-looking numbers on your reports. What’s wrong?
Those odd-looking numbers could be caused by one of these five common errors many small business owners make when using QuickBooks.
1. Not Reconciling Accounts Regularly
Failing to reconcile bank and credit card accounts is a big one. Missing or duplicated transactions can pile up if you aren’t reconciling accounts regularly. Over time, it gets more tedious to find them. This can cause income or expenses to be under or over-stated.
Fix: Reconcile your accounts at least monthly, matching every transaction in QuickBooks with your bank statements. This keeps your books up-to-date and accurate.
2. Misclassifying Transactions
It’s common to misclassify expenses or income, which leads to inaccurate reports and potential tax problems—for example, recording a capital expense as a regular operating expense or putting personal expenses under business categories.
Fix: Set up clear rules in QuickBooks to auto-categorize frequent transactions. Also, review the Profit and Loss statement periodically to spot odd entries.
3. Use the Sales Workflow Correctly
Create an invoice or sales receipt for income received from a client or customer. Don’t just record the payment as a deposit to the bank account. Not using invoices and sales receipts can limit the reporting options in QuickBooks. For example, sales and accounts receivable reports will be empty if you don’t create invoices or sales receipts.
Fix: Create invoices/sales receipts for all client or customer revenue.
4. Improper Use of the Undeposited Funds Account
Undeposited Funds is a holding account QuickBooks uses for payments until they’re deposited in the bank. Many people mistakenly leave payments in this account, which causes discrepancies in cash flow reporting.
Fix: When entering a payment from a client or customer, make sure the deposit account is “Undeposited Funds,” not your business’ bank account. This will allow you to easily match the payment to the deposit in the bank feed.
5. Not Recording Owner’s Draws Properly
Small business owners often confuse personal withdrawals (owner’s draws) with business expenses, resulting in inaccurate bookkeeping. These are not expenses but rather reductions in owner’s equity.
Fix: Record owner’s draws in a separate equity category. Avoid mixing personal expenses with business transactions, and make sure these draws are clearly reflected in the financial reports.
If you make sure you are not making these common QuickBooks mistakes, you are 80% of the way to having polished, accurate financial reports.
Schedule a free 30-minute call with Savvy Home Office Services to discuss a complete diagnosis of your QuickBooks. Now is the time to fix your bookkeeping before year-end!