Bookkeeping is a complex process, and it needs attention to details along with 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 on it accordingly as soon as possible, make sure your bookkeeper or your outsourced bookkeeping service provider can identify such signs. Some of the tell-tale signs of discrepancies in your bookkeeping are –
- 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 asset 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.
- Suspense Account: A suspense account is an account that has all your doubtful entries. These entries need analysis and proper classification. If your bookkeeping records are accurate, then you will not find this account in your books.
- Your books indicate you are earning a profit, while bank statements are reflecting a different picture: You don’t have any funds in your bank account or cash that match the profit which is reflecting in the profit and loss account. In papers, your business is doing well and earning high profits while you are either barely making ends meet or not even reaching the break-even point.
- 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.
- You have a huge amount in General Expense Accounts: General expenses are indirect expenses meaning they do not contribute to the direct production or service it could be rent, insurance, consulting expense, office supplies, and having a large amount in this account is not a good sign.
The above signs are the result of mistakes or errors, which either were done during recording or reconciling of books of account. Let us have a look at some possible reasons for the above discrepancies –
- Accounting errors: There are a few types of accounting errors that affect the financial statements. While most of these errors can be detected in the trial balance, but there are few such errors that 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 –
- 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.
- Not conducting accounts reconciliation on time: Accounts reconciliation is a useful tool for finding any discrepancies in your books of account. If you fail to conduct the same regularly, it could give rise to issues that will increase multi-fold.
- 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.
- Do It Yourself Mentality: When running your business DIY or do it yourself mentality for bookkeeping is not very beneficial and as it is a time-consuming process and requires 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.