Top 10 Accounting and Bookkeeping Mistakes Made by Small Businesses

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23682510_m_edited-1Ask any small business accountant or bookkeeper about the top ten mistakes they see most business owners making and you are sure to find many different answers.

As a bookkeeper for small business owners in Charlotte, North Carolina, I have seen them all. It is easy to spot the common mistakes that business owners are making yet many times, it comes too late and the business owner is stuck suffering from the consequences.

In the next set of articles I write, I am going to list what I feel are the Top 10 Mistakes Small Business Owners Make and what they can do to make sure they stay clear of these bookkeeping pitfalls.

Bookkeeping Mistake #1

WRITING OFF A MAJOR PURCHASE AS IMMEDIATE EXPENSE

Many business owners make the mistake of expensing a purchase at the time it was acquired. This may be due to the amount of money spent at the time of the purchase.

A good example of this is the purchase of a new printer, which can be purchase for as little as $250. Because the life expectancy of the printer is to be for several years, the printer is considered an asset and should be depreciated over its useful life. On the other hand, printer paper is considered an expense, even though a business may purchase $1,000 worth at a time. So the amount of money spent is not the deciding factor, but the useful life when determining whether to expense or depreciate the item.

When determining whether your purchase is an expense vs an asset, here are general guidelines to consider:

Longevity – What is the life cycle of the item in question? If it is expected to last for several years, both in durability and its usefulness, the recommendation would be to depreciate the item rather than expense it.

Consistency – When deciding to expense or depreciate an item, consider how similar items have been treated by your business in the past.

Materiality- If the cost of the item is minimal, when compared to income and the other expenses of the business, the tendency is to expense the item rather than depreciate it.

Playing it Safe- When in doubt, play it safe, be conservative and depreciate the item rather than expense it.

Although much of accounting and its underlying principles are straightforward and black and white, this is one of the areas where there are gray areas. Again, when in doubt, be conservative. If you are still not confident, contact your tax professional or accountant to help you determine what is best.

If you are in the Charlotte, Mecklenburg, Ballantyne, Matthews, Pineville or surrounding areas and are looking for part-time bookkeeping services, feel free to call us: 704-560-9318 or email info@charlottebookkeeping.com

Stay tuned for my article on Bookkeeping Mistake #2 !

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