The Importance of Classification in AccountingThe Importance of Classification in Accounting – Your company’s Bookkeeping system is vital to your business. It is not only the best way to manage your money but the information is also important for generating accurate financial statements and for preparing tax returns. If you misclassify an expense item, it can result in inaccurate financial statements and tax returns.

Heartfelt CFO and Tax Services’s Bookkeeping Avoids Financial Errors

If a business owner doesn’t understand the accounting process, errors can go undetected. For example, you enter a payment to an outside contractor as a commission to an employee rather than contract labor costs. This error could result in paying higher employment taxes and failing to generate a Form 1099-MISC to the contractor. Other errors can result from typos, including transposed numbers or misplaced decimal points.

Basic Financial Statements

The Importance of Classification in AccountingTwo basic financial statements that all business owners should be familiar with are the income statement and the balance sheet. The income statement documents all of a business’s income and expenses over a period of time. Revenue is documented in the credit account on the income statement while expenses are recorded as debits. The balance sheet provides a snapshot of the company’s finances. It reports three items: assets, liabilities and owners’ equity.

How Heartfelt CFO and Tax Services’s Services can Help Prevent Classification Errors.

The Importance of Classification in AccountingWhile you cannot prevent all data entry errors, you can have a policy to perform various reconciliations timely to ensure that data entries are detected timely and can be corrected. For example, you will want to perform monthly bank reconciliations, as well as accounts receivable and payable reconciliations. You can also run budget-to-actual variances to identify possible errors in classifying revenues or expenses, or run customer receipts or vendor payments reports periodically to ensure that all receipts and disbursements seem reasonable.

Save Time and Money by Outsourcing Bookkeeping Services

The Importance of Classification in Accounting – You may want your accountant to periodically review your accounts to make sure that they appropriately reflect the expenses you incur and comply with generally accepted accounting principles. If you find yourself unable to schedule in a Professional Bookkeeper, be sure to search for outsourced Bookkeeping Services, who provide Companies with Remote Bookkeeping allowing you to focus on tasks to help grow your business.