SMB focus: Best practices for business accounting accuracy

For many small business owners, keeping accurate accounting records feels laborious, consuming time that could be better spent. But such records are critical to the success of your business, rather than just a difficult requirement.

They provide a clear view of financial health – including your revenue, expenses, and cash flow – and are essential for informed decision-making and strategic planning. They’re also crucial to accessing financing opportunities, as lenders and investors require reliable financial data to assess your business.

Ultimately, organized records will save you time in the long run, reduce risk, and create a foundation for growth and sustainability.

In this article we’ll explain exactly what you should track, how you should use your records for invaluable insights, and introduce you to some tools that will take much of the legwork out of manual accounting methods.

What is accuracy in accounting

Accounting accuracy is achieved when the financial statements and records of a business reflect its true financial position of a company. This involves ensuring that all financial transactions are recorded correctly, with reliable and accessible information that’s free from errors.

Accurate accounting requires proper recording and classification of figures such as expenses, inventory valuation, invoices, and revenue.

Common accounting errors to look out for

There are several ways that errors can lead to inaccurate accounting. These are explored below.

• Data entry errors: These mistakes are made when inputting numbers or information, such as typing $5,000 instead of $50,000. Simple data entry errors such as these can lead to significant discrepancies in financial statements and cash flow tracking.
• Errors of commission: This is when an entry is recorded in the wrong account or category, such as mis-classifying office supplies as travel expenses. While these errors may not affect the total balance, they can easily distort your understanding of how your business is performing, leading to misinformed decision-making.
• Errors of omission: Unrecorded expenses or revenue are referred to as errors of omission. When transactions go unrecorded there will be an underreporting of expenses or income, resulting in inaccurate financial reports and tax calculations.

Best practices to maintain accounting accuracy:

Here are the six best practices that you can follow to ensure you maintain accounting accuracy.

Track income and expenses separately

One of the first steps in maintaining accounting accuracy is to ensure you always separate your business and personal finances.

In the early years of many businesses, there’s often a blurred line between the owner’s personal finances and those of the company, making it more challenging to accurately assess the business's financial standing.

Keeping income and expenses separate ensures that financial records accurately reflect the financial performance of your business. It prevents confusing errors that can arise when personal and business transactions are mixed.

Having distinct records for business income and expenses makes tax filing easier and ensures that business deductions are properly recorded, helping avoid overpaying taxes or making incorrect filings.

Worldpay IQ offers your business a streamlined way to manage payments. It provides instant access to sales totals and detailed breakdowns of card transactions. This makes it easy to record and track your business income and expenses.

Use accounting tools

Using reliable accounting tools will save you time and significantly enhance accounting accuracy. Such tools will automate repetitive tasks and reduce the likelihood of human error.

Accounting software streamlines processes like invoicing, expense tracking, and financial reporting, and features built-in checks to ensure entries are accurate and consistent.

To review available options and find the best fit for your business you can explore different types of accounting software tools with our guide for SMEs.

Implement frequent accounting reconciliation

Accounting reconciliation is the process of comparing your financial records with external statements – such as bank statements, credit card records, and vendor accounts.

By regularly doing this you can highlight any discrepancies – like missed transactions or data entry errors – before they grow into larger issues. It allows you to catch and resolve inconsistencies early, and ensure your financial data supports sound decision-making.

Carry out regular financial reviews

Another way to identify any errors is to regularly conduct financial reviews. By examining current and past financial statements as well as accounting records, you can spot discrepancies and highlight unusual or unexpected trends that may indicate errors.

Retain supporting documents

Supporting documentation is essential for substantiating your accounting records and ensuring your business complies with tax and audit requirements. Documents, such as receipts, invoices, contracts, and bank statements, are required to provide evidence of transactions and verify the accuracy of your financial entries.

Having well-organized supporting documents will save you time during audits or tax reviews. It will also help you resolve any discrepancies quickly by referring to a clear paper trail for each transaction.

Staff training

It’s important all your staff understand your accounting and record-keeping process. This will help minimize mistakes that can arise when they are taking, making, and recording payments.

Your staff should understand why accurate data entry, spotting discrepancies, and handling complex financial tasks correctly is critical to the successful operation of your business.

Regular accounting staff training sessions will ensure your team is updated on accounting software features, tax regulations, and financial reporting standards.

The benefits of accounting accurately

Maintaining accurate accounting records doesn’t have to be a burden. With the right tools, many processes can be automated, reducing errors.

By ensuring you follow the best practices outlined above, accurate accounting will deliver several benefits to the efficient running of your business and support your strategic decision-making:

1. Cash flow management: Accurate accounting allows you to track income and expenses precisely, providing a clear picture of cash flow. This will enable you to forecast financial needs, avoid cash shortages, and plan for future expenses.
2. Compliance with legal regulations: Accurate accounting ensures that your business stays compliant with tax laws and other legal regulations. By keeping up-to-date records and paper trails your business can meet its tax obligations, avoid penalties, and be prepared for audits without the frantic search for details of transactions and expense receipts.
3. Informed business decisions: Reliable financial data ultimately enables you to be confident you are making informed decisions. With accurate records, you can identify growth opportunities, foresee potential bottlenecks and adjust your strategies to improve profitability as you grow.

Accurate accounting lays the cornerstone for business success. By following a few simple best practices – and regularly reviewing and cross-checking your accounts – you can ensure that you have an up-to-date snapshot of the health of your business that you know you can trust.

Worldpay IQ will save you time by automating tasks and minimizing errors. Using it in tandem with your accounting software creates a streamlined financial ecosystem where transactions are recorded, monitored, and reconciled. This integration simplifies day-to-day tasks and provides valuable data that supports strategic financial planning.