When financial statements are prepared, there are number of hindrances and errors which are to be encountered in order to provide accurate bookkeeping services from FBS Chartered accountants.
Small business transactions: One of the deadliest sins of bookkeeping is ignoring supporting records for small business transactions. The core principle of bookkeeping is rendered meaningless if the transaction is recorded without any documentation of the business transaction actually occurring. Even during the times of financial external audits, supporting documents to even smallest of the transaction are considered to be important. It is reported as a weakness in controls if the proper record of the financial transaction is not being maintained. As it makes the business prone to financial fraud consolidated from numerous smaller frauds over a longer period of time.
Cost-benefit analysis: Maintaining a bookkeeping system is expensive, and there is a limit on how much benefit a company may reap from it depending on the nature of the business. If a company generates less profit than the cost of introducing and operating this bookkeeping scheme, it would be considered a failure in business planning and decision making.
Personal and company expenses: In small businesses, the financial transactions of the business and the owners’ are often misunderstood and mingled as the same group expenses. This leads to incorrect allocations of expenditures and withdrawals from the company, as well as a miscalculation of the investment available in the business.
Contractors and employees: Often the employees and self-employed contractors of the company are confused and wrongly allocated. Various regulatory bodies in various countries include a list of human resources as well as their contact information. If this is not done correctly, the regulatory authority can receive incorrect information. Since providing incorrect data to regulatory authorities will result in a fine and even imprisonment. Clearly, distinction is important in this regard.
Timely reconciliations: Bank reconciliations are often regarded as pointless because they accumulate undetected entries in bank statements, resulting in large variations in the long run. Since cash and bank of the company will never represent the actual condition of the firm without bank reconciliation.
Petty cash: Petty cash is often overlooked and unaccounted for. Since petty cash holds the smallest amount of cash, financial reporting should result from movement in the petty cash accounts to ensure the authenticity of the financial reporting.
Profit and cash: As the businesses start to grow there has to be a clear differentiation between the cash flow and profit reporting. It enables the business to monitor both aspects separately.
Determine the source of the problem in each of the elements and address it accordingly. Profitability can appear to be natural, but cash deficits may force a business into bankruptcy, and vice versa.
Internal controls: Ignoring the importance of internal controls can be classified as one of the most serious blunders of bookkeeping. As bookkeeping consist numbers and financials, it is very prone to errors and frauds. Adequate internal controls are necessary to preserve the integrity of the financial accounting system and its related reporting.
Paperless Environment: While most companies are moving toward a paperless world, some are steadfast in their commitment to paper-based operations. This method makes it impossible for the organisation to process data if the amount exceeds a certain threshold. Since physical life takes up more space than the system’s digital memory.
Cash / Accrual accounting: After a certain size, the best practice is the switch from the cash to accrual based accounting to ensure matching concept. Because when the transactions are correctly matched with the financial year, then it will produce better reporting.
Finally, if these errors are reported and corrected in a timely manner, they have the potential to greatly enhance financial reporting.
For more information about how FBS Chartered Accountants can help your business with accurate Bookkeeping, get in contact today call: 0204 526 5195 or drop us a line hello@finchleybusiness.co.uk
