Update: This article was last updated on 18th Mar 2019 to reflect the accuracy and up-to-date information on the page.
Maintaining a balance sheet can be defined as the act of balancing the assets, liabilities, and equities of a business. In a way, it represents the financial condition of the business.
For a business to be in a healthy condition, assets must be equal to the sum of debts and equity in the balance sheet. If you want the business to progress, it is essential to give undivided attention to the accounting process as it gives you a good picture of the business performance.
Balance sheet eventually supports the task of planning and decision-making, thus, making it crucial for the businesses.
Since we are not part of an ideal world, a small act of ignorance can cause vital errors in the balance sheet. Even the smartest and highest-paid accountants are prone to errors and mistakes that can change the financial equations and lead to turbulence in the business plans.
Some of the most common accounting errors that affect the balance sheet are listed below:
The balance sheet is about data that gives information about what a company owns and what it owes. Now, this owning and owing includes everything from the building infrastructure of your office to the mouse connected to a computer.
So, this data can be of very large amount, and at the same time, very crucial. A small error in entering the data in the sheet can affect the balance sheet in a big way. This error could be as simple as wrong decimal use, for example- an amount of $599.99 entered as $5999.9.
Digit exchange, not following currency rate, etc. are some more frequent errors. When you make thousands of entries of these small and big numbers on the balance sheet, spotting such minor errors is not easy.
The errors may be considered minor, but their effect is not. So, be cautious and wide awake when you prepare the balance sheets.
Isolation from Chronology
This is a rare error but very critical to an accounting process. Arranging the data in the balance sheet in the actual sequence of occurrence is very important, but many novice accountants have the tendency of not taking it seriously.
The randomness in the balance sheet not only makes it illegible for you, but the chances of missing out on some vital data are also very high.
Since updating the sheet instantly is not always possible, keeping the receipts and bills safely becomes crucial to avoid this error, so that the balance sheet can be updated correctly at the earliest.
Waiting for the month-end or year closing to update the details can be unwise as finding those receipts and bills can be a tough thing.
Flaws with Classification
Assets listed in the balance sheet must be equal to the sum of liabilities and equity of the organization. Listing an asset as a liability or vice-versa can disturb the equation and create a humiliating situation for an accountant. Mapping assets/liabilities with variable prices require the accountants to be razor-sharp. Although the accountants seem to do well with prices, they tend to go loose with the classifications.
You should try to update the balance sheets timely to work without stress. It reduces the chances of making such mistakes to a considerable level.
Lagging on Technology
While modern accounting software is highly in-demand in the market, some business owners and accountants are still sticking to the traditional mediums. A recent study claims that a big number of businesses are still using Excel as their most advanced accounting tool.
This explains the story of why they struggle with the balance sheet. From curbing fund management ability to losing clients and investors, mistakes in the balance sheets have many ways to decline your business.
Switching to some reliable accounting solutions such as QuickBooks, helps you reduce the number of mistakes with the balance sheet. With the defined range and proper indexing, data input errors can be minimized.
Moreover, hosting QuickBooks on the cloud, allows the accountants to work from anywhere and thus, the data entries are not missed. Real-time collaboration lets the different users make changes to the file in real-time, which means your team of accountants can also work on the same balance sheet.
You should not make the mistake of underestimating the importance of accounting for your business. It is recommended to hire experienced accounting professionals for your accounting operations.
Even an experienced accountant cannot guarantee perfection but choosing the fresher for such a critical task is not a smart choice.
Implementing multiple layers for error checks is an option that some businesses choose. It has its own good and bad. However, technology has evolved significantly over the years, and there are a number of accounting software that can make accounting easier and error-free to a certain extent. It might cost a little on expenses at the beginning, but in the long run, it can pay off for many good reasons.
Chat With A Solutions Consultant