These are the five most common QuickBooks mistakes I find, when review a new client’s accounting records. Although they’re in no particular order, they are all important because each mistake can mislead the business owner in terms of profitability, debt levels or operational decision making.
1. Instead of posting business credit card transactions in a credit card type account, the monthly charges, as taken from the credit card statement, are summarized by expense type (e.g. meals, gas, office supplies), and then entered as either a vendor bill or bank check. This makes it hard to audit for mistakes and hard to manage credit card due dates.
2. True costs associated with performing a service or selling a product are listed as an (overhead) expense rather than as cost of goods sold (COGS). Although fixing this will not change the net profit, it will make the income tax return more accurate, and help diagnose operational issues such as breakeven point.
3. Customer down payments are received as a temporary overpayment. This causes accounts receivable to become negative, which should never be. The remedy is to create a Customer Downpayment liability account, and post the payment there. When the actual invoice is created, this down payment is removed and posted against the invoice.
4. Too many expense or income accounts. Technically this won’t lead to an inaccurate financial statement, but it will make it very hard to understand how well or poorly the business is doing. QuickBooks has excellent reporting capabilities, so simplify and condense your chart of accounts.
5. Fixed assets and depreciation aren’t up to date or accurate. Every time you purchase an asset worth more than $500, or dispose of an asset, you should update the appropriate fixed asset account. If you just started a business, any equipment or furnishings you brought into the business should be listed as a fixed asset. Likewise, every year the depreciation listed on the business tax return should also be posted in QuickBooks. This will reduce the book value of the assets, keeping the balance sheet more honest.
Although these are five common accounting mistakes, there are many other little (and major) mistakes I find when examining a set of accounting records. I can’t stress enough how important it is to seek regular professional advice from a CPA or accountant, to make sure you’re on the right track. You work too hard in your business, not to have accurate financial feedback.
5 QuickBooks mistakes