Monday, Feb. 27th 2017

3 Accounting Red Flags I’ve Seen One Too Many Times

angie-geerPost written by Angie Geer, Bean Counter | Proud Mama | Doting Wife | Cooking Enthusiast | PTA Volunteer (Sucker)

I’ve seen a lot of silly moves over the years that can really get your books jumbled. When this happens, it causes headaches and unnecessary additional expenses.

Everyone needs help sometimes and so I’m here to tell you…when it comes to your books, if you need help, just ask!

Here are three examples of “red flag issues” I’ve come across, how to fix them, and the repercussions you will experience as a result:

SCENARIO 1:

What happened and what’s wrong with that?
You’re writing direct checks in your accounting software because your vendor called harassing you and you wanted to get them taken care of. Wait a second…you already had a bill entered in the system. Uh oh. You just double-booked your expense and your Accounts Payable is now inflated because that bill wasn’t relieved.

How do you fix it?
Delete the original check and go through the proper ‘bill payment’ function, or edit the existing check by pointing it to Accounts Payble and the vendor…then you can apply the ‘credit’ to the bill.

How does this hurt me?
If these errors go undetected, your financials will be incorrect. Plus, you just wasted valuable time.

red flagsSCENARIO 2:

What happened and what’s wrong with that?
ABC Co. paid an employee’s personal legal bill on their behalf because they were enduring financial troubles. The bill was tagged as a legal expense.

However, this is NOT a company expense and can’t be included in the financials and tax return activity as such. This is considered a bonus to the employee.

How do you fix it?
The original check is to be treated as an employee advance. Have your payroll company process it as a bonus and net it to zero to back out the advance.

How does this hurt me?
If the payroll period in which the occurrence exists is already closed, then payroll taxes and quarterly returns are already processed. All payroll returns now have to be amended, as well as W-2’s, depending on when the issue was discovered. This can cost you late fees and penalties from late filing, as well as a pretty penny from your outside payroll processor to amend all of the returns.

SCENARIO 3:

What happened and what’s wrong with that?
You’re incorrectly distinguishing between fixed assets and expenses on your entries. You and your CPA can distinguish a solid threshold amount, but generally, you don’t call anything a fixed asset that is under $400-500…stick with an expense account. Your $250 scanner is equipment in our minds, but not fixed asset worthy.

How do you fix it?
Ask your accountant to review your expenses and fixed asset transactions. If you do have fixed assets, be sure to provide a solid description so it can be notated properly.

How does this hurt me?
Fixed assets are a balance sheet item and expenses flow through the P&L. If you classify these items incorrectly you won’t have a clear picture of your financials. Also, if you’re going hog wild with calling expenses fixed assets, this probably means you’re declaring them on your property tax assessment and paying unnecessary property tax. If these errors are discovered after your tax return was processed, you’re looking at shelling out more cash for your CPA to amend your return.

Are you afraid to rack up unsightly hourly fees by asking your accountant questions you think might be silly? With Virtual BeanCounters, our outsourced bookkeeping clients are on a fixed fee. What does this mean? This means, when you have questions…ASK AWAY! Pick up the phone or shoot us an email. It’s always better to ask the question before you make a mistake that may cost you time and money.

Thank you for taking the time to read the Virtual BeanCounters blog! If you have any questions about this post or any other questions, give us a call at 913.649.1040.


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