Accounting problems are issues that create a material financial statement error, hide fraud due to poor internal controls, stray from Generally Accepted Accounting Principles, result in regulatory noncompliance, or expose your organization to cybersecurity risks. These accounting issues can have serious ramifications, from fines imposed by regulatory agents to depleted cash levels from concealed fraud.
Some accounting problems stem from outdated technology and operational silos, while others are due to a lack of internal controls and in-charge employees that don’t have the proper understanding of accounting principles. With the right software tools and professional oversight, common accounting challenges can be overcome.
The accounting errors your business faces will differ based on your industry, business size, and goals. Nevertheless, here are ten common accounting mistakes and how to overcome them.
Following the passage of ASC 606, companies are required to recognize revenue based on contractual obligations. Improperly applying revenue recognition principles can result in misstated revenue and net income, which impacts your financial and tax compliance.
To solve this problem, invest in a robust accounting software program that monitors invoice performance. In addition, bring on an experienced accounting team that understands the specificities of ASC 606.
The Financial Accounting Standards Board reworked how leases are reported on financial statements. As a result, companies with leases that span more than a year need to report a lease asset and liability based on an applicable interest rate and expected rent payments.
The first step in solving this accounting problem is to understand your current lease structures. If all of your leases are less than a year, you do not need to follow lease accounting standards. If you do have leases over one year, reach out to an accountant to understand how to record the lease asset and liability.
One common accounting pain point for many business owners is payroll. If you decide to calculate your own payroll, taxes, and benefits, you could make mistakes. Miscalculating your employees’ paychecks can result in lost morale and productivity.
Overcoming payroll accounting issues relies on having the proper team member, software, or provider handling payroll. For example, many software programs have built-in payroll calculators, eliminating the need to manually calculate payroll items. Leverage software capabilities or find a cost-effective outsourced provider. Outsourcing can also reduce fraud!
Within your accounting system, you have the ability to generate a cash flow statement. However, many business owners find that this statement isn’t accurate. Basing business decisions on an accurate cash flow statement leads to cash flow problems, such as overdrafting your account.
Solving your cash flow problems can be done by monitoring both your QuickBooks ledger balance and your bank statement balance and looking into any discrepancies. Then, be sure to prioritize reconciliations at the end of each month to ensure your ledgers are accurate.
A major part of business accounting is controlling your outflows. This includes payments to vendors, employees, and other third parties. Too often, small business accounting neglects the proper expense controls, such as verifying vendors, keeping reimbursement receipts, and tracking overall spending.
These common accounting issues can be overcome by investing in a robust expense management platform, like Eftsure. At Eftsure, we provide you with all the tools you need to manage your spending, reduce fraud, and safeguard your payments.
Your small business accounting financial statements are a roadmap. They outline your past performance to help you make more informed decisions to reach your business goals. Financial analysis involves calculating ratios, understanding budget performance, and managing business trends.
On a regular basis, you should evaluate your financial performance, including your overall financial health, profitability, and progress toward goals. This will help you take advantage of new opportunities and reach your business objectives, whether that be improving profitability or scaling.
Another accounting challenge that business owners face is poor internal controls. Internal controls are your first line of defense to reduce fraud and asset misappropriation. If you don’t have the proper internal controls, your business could be losing money each month.
Find where your business is most susceptible to fraud and put the necessary controls in place. This might involve separating duties, restricting certain areas of your accounting software, outsourcing payroll, or using software to detect fraudulent or duplicate payments.
Regulatory compliance covers a variety of areas, including taxation, data privacy laws, and sanctions. Violating just one requirement puts your business in jeopardy. For one, regulators can impose fines. In addition, they can sanction your business, hindering sales.
Maximizing compliance relies on understanding the different regulations your business is subject to. Two ways to improve compliance are to hold training sessions with your accounting team to go over upcoming deadlines and bring in an outside accountant to ensure proper reporting.
There are two primary methods of accounting: cash and accrual. Cash only recognizes transactions when money leaves the bank account. However, accrual accounting is more complex, requiring accrual, payable, receivable, and prepaid accounts.
Addressing the accounting challenges of accrual reporting can be done by having clear controls surrounding income and expenses. You need to know which bills are still due and who owes you money at the end of the reporting period. In addition, don’t let your accounting records fall behind and invest in the proper accounting systems to help with accrual reporting.
Embezzlement and fraud are common accounting problems. In many cases, money stolen from your company can go undetected for months without the proper accounting solutions in place.
To overcome this problem, leverage technology. Use software programs that automatically search for duplicate payments, unusual transactions, and new vendors. This can help you detect and prevent fraud.
Summary
In a world increasingly dependent on digital platforms, you may wonder how likely it is that you’ll fall victim to a scam.
Internal controls over vendor master file keep your data secure with clear rules, audit trails, and consistent oversight for long-term data integrity
The vendor master data cleansing process is a critical activity every AP team should periodically undertake to stop payment errors and fraud.
Eftsure provides continuous control monitoring to protect your eft payments. Our multi-factor verification approach protects your organisation from financial loss due to cybercrime, fraud and error.
