![Poor Accounting Practices That Business Owners Should Avoid](https://accountingservices.asia/wp-content/uploads/2023/01/Poor-Accounting-Practices-That-Business-Owners-Should-Avoid.jpg)
Most business owners may not pay much attention to their accounting-related tasks when they first started running a business. This causes them to have some bad habits on accounting (Also see The Responsibilities of Accounting Department) without them knowing. Poor accounting practices can bring a huge blow to a rapid-growing company as business owners can hardly forecast the potential financial issues that will probably arise in the future and make necessary corrections to avoid them. This way, it is almost impossible for the company to reach its goals and achieve long-term success.
To avoid poor accounting practices from bringing fatal consequences to the company, business owners should consider hiring an accounting firm in Singapore. If you are one of them who prefers doing the accounting tasks on your own rather than handing them over to external accounting firms, here are some poor accounting practices you need to avoid.
To the untrained eye, cash flow and profit bring the same meaning. Thus, some business owners tend to record every deal as the profit earned as soon as it takes place before they complete their work. As time passes, this can bring serious impacts to the business if it needs longer time to complete the project or if the customers pay the company late. As business owners have recorded the profits, they may think that is the amount of cash they have in hand and can be used freely. Also, recording income (Also see How to Differentiate Revenue and Income?) right away can cause the financial condition of the business to be healthier than the real situation.
Mixing up personal and business finances is another common mistake that most business owners would commit, especially those who have just started running a new business. Some would think that there is no need to separate them as the money is flowing to the same place in the end. However, this makes expense tracking more difficult, and business owners may get audited by the authorities too. Hence, the correct way of handling finances is to have separate personal and business bank accounts.
Besides, some business owners do not have the habit of keeping the receipts. Although some of them use debit or credit cards for business expenses, the statement will not be able to provide sufficient data about the transaction. Instead of stuffing the receipts to nowhere, business owners should keep them neatly. Then, they should record how they use the items for the business and what benefit the company has obtained from those items. This will be very helpful when they forget what the transactions are all about.
Another mistake that business owners should never make is not to carry out bank reconciliation. They should make reconciliation one of their top priority as this makes sure that their books of accounts are always in sync. This helps in presenting the real financial situation of the company to the business owners too. If they carry out the bank reconciliation seriously, they will be able to know the amount of money they actually have in their accounts so that they can plan for their expenses.
The examples above are some of the bad practices that all business owners should never implement when they are dealing with their accounting (Also see What are Provision and Accrual in Accounting?) tasks. Good accounting practices should be systematic and consistent. This is to avoid confusion and mitigate the risks of committing mistakes. Also, this helps business owners in the process of generating financial statements (Also see What is a Financial Statement Review? ) so that they are well-informed of the performance of their business.