Usually, business owners are going to run into bookkeeping and accounting mistakes from time to time. But some balance sheet blunders are the major ones, according to experts. The best way to avoid such issues is to learn the common mistakes people make on their business balance sheets.
A balance sheet is a financial statement that indicates the company’s progress. The business balance sheet consists of three categories. They are assets that you own, the equity left-over after excluding expenses, and the liabilities you owe. A balance sheet is a formula: Assets = Equity + Liabilities. Your balance sheet must be accurate due to its importance as a key to understanding your business’s progress. Here are four common business balance sheet mistakes and how to fix them.
Incorrect data classification
The most common balance sheet mistake happens during the recording of transactions. The accountant will write transactions on the balance sheet as a liability or an asset but can make an error while classifying it. Incorrect data classification on the business balance sheet means it is invalid due to the errors.
Physical or non-physical property are your assets as they add value to your business. They include commercial transport, computers, trademarks, etc. There can be multiple asset accounts that involve petty cash, accounts receivable, and inventory, etc.
Businesses accumulate debt by owing money to sources like government agencies, organizations, vendors, companies, employees, etc. Your current debts are categorized as your business liabilities. There will be higher liabilities depending on how much you owe. Mistakes can be made while writing your liability’s exact amount on the business balance sheet that can be long-term and short-term. Both long-term and short-term liabilities include mortgages, supplies, loans, invoices, etc.
Depending on how many transactions your business does daily, weekly, or monthly, entering transactions can be overwhelming. Even if you have an accountant or use accurate software, there is a dependency on entering the information on the balance sheet accurately. If a transaction gets classified incorrectly, this can cause major issues and be costly and confusing. Once the mistake is discovered, you must do an audit and get the balance sheet corrected immediately.
Again, depending on how many transactions your business does daily, weekly, and monthly, a large volume of transactions can be entered onto a balance sheet. Accountants can overlook transactions or forget to enter transactions into the business balance sheet. Even one missing transaction can throw the entire balance sheet off and can cause major issues. Considering your transactions, including expenses, supplies, cash flow, and inventory, are all put into the balance sheet as transactions happen. It can be easy to figure out what is omitted.
While mistakes happen, it can be costly and time-consuming to correct the error. The best way to handle it is to make sure you or your accountant enters every transaction as soon as it occurs and doesn’t accumulate them throughout the day and enter them all at once.
This mistake may not be discovered, and if that is the case, your balance sheet will not be an accurate depiction of your company’s progress. This error must be avoided by entering transactions immediately, or the balance sheet will be pointless.
Neglecting to record inventory variations
One of the more common errors on the balance sheet is when it comes to recording your inventory transactions. Having an accurate inventory entered on your balance sheet will give an overview of what does well and what doesn’t. It will also give you an idea of the success of certain products for development purposes. This is why you must have a regular accounting of your inventory.
Making transposition error
Another fairly common mistake is to transpose numbers when entering in amounts to the balance sheet. While seemingly small in reality, this mistake can be big because the balance sheet will not be accurate. This is another mistake that can go undetected and make the balance sheet an inaccurate accounting of the company’s progress.
The key to having an accurate and useful balance sheet is to enter in information as you go and to check and double-check everything you enter. If even one of these mistakes occur and go undetected, you present an inaccurate report of your company’s progress.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.