I do my own books for three small businesses. One is a real estate business that my son and I own. We use the business for commission income when we buy/sell real estate. Those events typically happen a few times per year. In January, I was wondering if I needed to prepare any W2 forms.
Quickbooks is the software I use for accounting. I opened the profit and loss report and filtered for 2022. I have accounts for payroll and tax. I noticed that my tax account wasn’t high enough compared to my payroll.
It only took a few minutes to double click both the payroll expense and the tax expense and realize that I had forgotten to pay tax on one of our incomes. I corrected the mistake and created our W2s.
Monthly you should look at your profit and loss (aka net income) statement, your balance sheet, your accounts receivable, and your reconciliation reports. I had gotten lax and because of that I missed a mistake.
We all can make mistakes. I looked at the books for a construction company. The bookkeeper had been letting Quickbooks match the transactions in the software with the entries in the bank, while balancing the books every month. When there was a discrepancy, she accepted the Quickbooks option to write off the difference. She had written off tens of thousands of dollars. The result was the business looked more profitable than it was and a vast overpayment of taxes. That wasn’t just a mistake. That was incompetence and/or negligence. If the owner had looked at the monthly reconciliation reports, the write off would have been obvious.
When I clicked on the income for the construction company, I saw a list of customers and how much each had paid. I asked the owner if the amounts looked about right. They did not. Sometimes it was a double entry that made the error. Sometimes the payment had been applied to the wrong account.
Checking the accounts receivable report, we could see how much each customer owed the business. The owner knew that some of those customers had paid and didn’t owe anything. That is how we caught the misapplication of receipts.
The sooner errors like this are caught, the easier they are to correct. Blindly trusting your bookkeeper or accountant leaves you open to problems. Even (maybe especially) if you are the bookkeeper.
Leave a Reply