Good accounting information is essential for any business’ success. Accuracy, timeliness and integrity in financial management are vital because inaccuracies can lead to uninformed decisions made by those who manage the business’ operations and those who have invested capital in the company.

Additionally, mistakes made in the accounting process can result in ethical, logistical and legal problems.

Mistakes to avoid

There are many common accounting mistakes business owners are prone to make. Some of these include:

• Accidentally recording transactions from a prior period. Once a business closes their books for a fiscal year, they should not go back and change them. The temptation to do this can be remedied by checking the balance sheet from previous periods to ensure that the amount remains the same.
• Incorrect asset or liability balances. On the balance sheet, asset accounts should have a debit balance and liability accounts should have a credit balance. To avoid an inaccurate amount, business owners should check the balances on both of these accounts at least monthly.
• Misclassifying expenses. Many accounting systems allow for employees to enter transactions quickly and easily. However, this ease of use also makes picking the wrong expense account or expense description for a particular transaction easy to do. This common error can be avoided by assigning someone to scan over the business’ expense statements on a regular basis.
• Not saving receipts. Not keeping receipts can result in unorganized financial records and problems with the IRS if an audit is ever required. Businesses should make it a priority to save their receipts or make copies of them for their records.

Although these common accounting errors may seem small, they may lead to larger financial problems in the future if not taken care of.

Consequences of inaccurate financial information

If minor accounting mistakes turn into bigger errors, the company may be subject to the consequences of financial fraud. For companies that are publicly traded, the Sarbanes-Oxley Act subjects business owners to prison time and fines for falsifying financial records. Additionally, a business’ investors may be able to successfully sue the company for civil damages if evidence of accounting mistakes or falsified financial information exists.

Businesses should exercise caution when it comes to managing their financial accounts as lack of understanding in regards to accounting practices is not an adequate defense method in response to charges of fraudulent financial errors. In order to avoid the legal consequences of maintaining inaccurate financial records, business owners should consult with an attorney who can ensure that their accounting practices align with legal standards.