Bookkeeping mistakes happen – I get it – they happen to the best of us. But sometimes bookkeeping mistakes happen because of something we read on the internet written by people who mean well. I want to warn you:
Not everyone out there is qualified to give you bookkeeping advice! AND, not everything you read on the internet contains up-to-date information!
Just this week, I ran across a couple of things that really sent my blood pressure off the charts (I’ll tell you what they were later in this post). These articles caused me to write this blog post instead of the one I had planned that talked about how to evaluate your year-end financials.
Common bookkeeping mistakes
Here is a list of common bookkeeping mistakes that happen:
- We transpose a number – say the receipt totals $60.69 and we enter it as $60.96. Not a huge deal. If you use accounting software and split out the details of the items purchased, your transaction won’t balance and you’ll be able to fix it immediately. Otherwise, we’ll discover the mistake when we reconcile our checking or credit card account.
- YES, you should be reconciling your checking and credit card accounts EVERY month.
- We assign something to the wrong account – ok, that’s NOT the end of the earth but it can skew your numbers.
- If you are a maker and purchase $100 worth of yarn – you should enter it into Inventory and NOT post it directly to Cost of Goods Sold.
- Not doing a yearly physical inventory. If you file a Schedule C with your Federal Income Tax return (Form 1040) you’ll be asked for beginning and ending inventory – PLUS any amounts taken from inventory for personal use.
- Mixing business and personal expenses in one bank or credit card account – this makes it super hard to keep things straight and if you are every audited – well the IRS doesn’t like this one bit!
- Throwing all your receipts into a shoebox and saying – “oh well, I’ll do this later” and the next thing you know you have an entire year of STUFF to go through.
- Including the Sales Tax you collect on your sales as Income. Sales Tax that you collect is NOT your income – that money belongs to your state, they expect you to hand onto it until it’s time for you to remit it to them. Sales Tax you collect is a Liaibility – money that you owe someone else.
- There are more things – but hey, I don’t want you to feel that I’m picking on you 🙂
These were the articles that sent my blood pressure off the charts!
I read an article about the hobby vs. business myth, in the article there was an explanation of where hobby income and expenses were reported on a Federal 1040 form. While the article offered some good advice the information about hobby income is OUTDATED, it’s ONLY accurate for tax years 2017 and prior. And there is no mention at all that the tax laws for 2018 have changed – not even a note! So, here’s a brief update on hobby income & expenses – contact your CPA or tax preparer for ALL of the details:
- Line 21 for reporting Other Income (such as hobby income) is no longer on the 1040 form, it’s now reported on Line 21 on Schedule 1
- Schedule A (where you previously could deduct hobby expenses UP TO but not more than the total of hobby income) no longer exists. And none of the new Schedules 1-6 have a spot to report hobby expenses. This means that you are taxed on your ENTIRE hobby income.
NOTE: Schedule C – Profit or Loss from Business still exists for Sole Proprietors and hasn’t changed much for 2018.
The other article I read offered a free Excel based handmade business bookkeeping spreadsheet (I’m not even going to post that link to that), written by someone who clearly states that she now uses QuickBooks for her bookkeeping. Ok, so fine – I don’t have much of an issue with that. But what I do have an issue with is that in her spreadsheet she has you track the Sales Tax you collect on your sales as INCOME! This is totally inaccurate.
With that, I’m going to end this post (and my rant) before I get totally carried away.
Do you have bookkeeping questions? If so, hop on over to our Facebook group and feel free to ask.
Until next week, Happy Creativeness!