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Understanding accounting errors and how to prevent them

A business owner managing their accounting
Adi Trudler
Published at | Updated:

Business accounting or finance management is more than just keeping the books organized and filing tax reports. Accurate accounting is crucial for the health of business financials and growth. If you want to save money, increase profits, and identify where budget cuts are needed–you need your accounting to be meticulous.

Yet for small business owners who have to deal with everything involved in running a business, tracking income, expenses, taxes, and vendor payments are complicated and time-consuming. So, how do you make sure you don’t make errors? A good place to start is by identifying the most common accounting mistakes so you can better avoid them.

5 most commonly made accounting errors

1. Data entry errors

Data entry errors include leaving out or adding a digit or a decimal place when uploading an invoice or making a payment, omitting or duplicating an entry, treating expenses as income or vice versa, and more. Yet accurately documenting information is crucial to any business. And these types of errors usually happen due to lack of attention.

One way to guarantee there are no data entry errors is to automate your accounting process. When using Melio for your bill pay, you can upload invoices by snapping a photo and all details are updated automatically and accurately.

2. Failing to reconcile books

Reconciling the books is important not just for the sake of those of you who don’t like a messy back office. It also keeps your business on track with its finances, as well as with different regulatory requirements.

What does it mean? While you’re recording cash flow and other financial data in your books, you want to regularly go back and ensure your bank account reflects that same balance. Differences that are detected when reconciling the accounts are called discrepancies.

To avoid them, we recommend conducting a periodic professional review of your accounts. And, it is always a good idea to hire a professional accountant or bookkeeper to reconcile the books for you. It’s their expertise which means there would be much fewer errors.

3. Not backing up data

This may sound obvious, but you’d be surprised how often this issue occurs. Your financial documents are stored in different places–some are in a pile on your desk and others in the cloud. When they’re not correlated, that can cause a big issue down the line. And when one system isn’t up to date for some reason, going back and finding where we lost track of everything is a huge waste of time.

There are many tools that allow you to back up your data, and again, using online tools to do everything will make everything a lot smoother.

4. Error of omission

An error of omission means you forgot to enter a transaction in the books. You may have forgotten to enter a sale of a service or an invoice you paid. Errors of omission tend to creep up when a company uses petty cash to pay for expenses.

And these kinds of mistakes are extremely hard to find, so it’s better to have a system in place to enter each transaction. One of the best ways to do so is by making all business payments from one online platform. That way, you can be sure that all transactions are documented correctly.

5. Not using an accounting software

If you’re using an Excel spreadsheet or paper ledger to keep track of all your finances–and are successful in doing it over time–we admire you. However, if you want to avoid errors altogether, it may be time to invest in an accounting software.

Most accounting softwares integrate with your bank account, meaning less manual work for you. Some, like QuickBooks, also sync with Melio, which helps you avoid dual data entry, save time uploading invoices, and helps you keep track of every payment you make.

Having a software in place will ensure your accountant has all the historical data they need to manage your books, payroll, and taxes.

Automate your accounting

Most accounting errors are usually the result of human error and can be avoided by automating your accounting. Additionally, hiring a professional to manage your finances guarantees you use the right tools, plus avoid most of these common mistakes.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.