How to Detect Discrepancies In Bookkeeping and Possible Reasons Behind The Same

Bookkeeping is a complex process that needs attention to detail and consistency in recording and reconciling all transactions. Negligence in doing so can lead to confusion and may also land you in trouble with the Australian Tax Office (ATO). It is crucial to observe & identify the signs of discrepancies and take appropriate action accordingly as soon as possible. Ensure your bookkeeper or outsourced bookkeeping service provider can identify such signs. We will discuss some of the tell-tale signs of discrepancies in your bookkeeping.

Signs of Discrepancies in Your Bookkeeping

1. Account payables & receivables reports don’t match with the amount you need to pay or owe from others: Accounts payable and receivable are a vital part of any business, and both play an essential role in the amount of assets and liability you possess. If these amounts are not recorded and calculated accurately, you can see a difference in your estimation or the vendor payment amounts. Conducting regular reconciliation for accounts receivable and accounts payable processes will help you avoid future chaos.
2. Suspense account: A suspense account is an account that has all your suspicious entries. These entries need analysis and proper classification. If your bookkeeping records are accurate, then you will not find this account in your books.
3. Your books indicate you are earning a profit, while bank statements reflect a different picture:  You don’t have any funds in your bank account or cash that match the profit reflected in the profit and loss account. In papers, your business is doing well and earning high profits while you are barely making ends meet or not even reaching the break-even point.
4. Invoices on payables report which has been paid: You encounter an amount to be paid to your vendor in your payable report that you are confident has been paid off earlier, but due to some reason, it is not waived off from the books. Paying your vendor twice for the same product or service is not something that anyone wants to do, and even if your vendor is kind enough to remind you that your dues are clear, it is not right for your reputation and can be a base for future disagreement.
5. You have a huge amount in general expense accounts: General expenses are indirect, meaning they do not contribute to the direct production or service. It could be rent, insurance, consulting expenses, or office supplies, and having a large amount in this account is not a good sign.

Reasons Behind Bookkeeping Discrepancies

The above signs result from mistakes or errors while recording or reconciling books of account. Let us have a look at some possible reasons for the above discrepancies –

1. Accounting errors: There are a few types of accounting errors that affect financial statements. While most of these errors can be detected in the trial balance, few such errors do not affect the trial balance, for example, an error of commission where you record a debit or credit to the correct account but to the wrong subsidiary account or ledger. It is important to avoid or correct these errors at the right time. Some of the other accounting errors are as follows –

• • Error of Omission – A financial transaction that is not recorded or is completely omitted.
  • Error of Original Entry – Recording of the wrong amount for a transaction.
  • Error of Duplication – Recording of the same transaction more than once.
  • Error of Commission – A transaction recorded to the wrong subsidiary account or ledger.
  • Error of Principle – A transaction recorded by applying a wrong accounting principle.
  • Error of Entry Reversal – A transaction that was recorded in reverse, meaning a credit was recorded as a debit or vice versa.
  • Transposition Errors – This happens when two or more digits are reversed.

2. Failing to separate personal and business accounts: Business bookkeeping should be separated from personal bookkeeping; one should never mix personal accounts and business accounts. Failing to do so will only increase the chances of future discrepancies.
3. Not conducting accounts reconciliation on time: Accounts reconciliation is a useful tool for finding any discrepancies in your account books. If you fail to conduct the same regularly, it could lead to issues that will increase multi-fold.

3. Inconsistent in recording: We believe the foundation of effective bookkeeping is attention to detail and consistency.  The accounting errors we talked about before can also be reduced to a great extent when you record transactions as and when it happens.
4. Do It Yourself mentality: When running your business, the DIY or do it yourself mentality for bookkeeping is not very beneficial and is a time-consuming process requiring a certain amount of skill and accuracy. We advise you to focus your time on the core business operations like marketing and sale, which directly lead to overall business growth, and let professionals take care of your bookkeeping.

We hope this article helps you to tackle any bookkeeping discrepancies and help you not only survive but indeed thrive. At times detecting discrepancies in bookkeeping on your own can be difficult. In such a situation, it is best to reach out to professional accounting and bookkeeping service provider who can handle your accounting and bookkeeping issues efficiently. Doing so will not only solve your accounting and bookkeeping woes but will help you to streamline your finance and focus on what is more important, your core business activities. If you are looking for bookkeeping experts, then you should definitely give our bookkeeping service a try. Our experts will take care of all your bookkeeping needs and will further ensure you are headed towards a healthy business finance goal. Contact us today to talk to our expert accounting and bookkeeping team!